Holding

The contractual definition of gross revenue in the telecom licence agreement is binding; TRAI and TDSAT lack jurisdiction to alter it, and licensees may only contest specific demand calculations, not the definition itself.

Summary

The Supreme Court examined whether the definition of "gross revenue" in clause 19.1 of the telecom licence agreement, which determines the Adjusted Gross Revenue (AGR) for licence fee calculation, could be challenged by the licensees. It held that the contractual definition is binding, that TRAI and the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) lack jurisdiction to alter or invalidate the licence terms, and that licensees may only contest specific demands, not the definition itself. Consequently, items such as discounts, foreign exchange gains, interest, dividends, and infrastructure sharing revenue are included in gross revenue, and the levied interest, penalty and interest on penalty are valid. The Court allowed the Union of India's appeals and dismissed the licensees' appeals.

Issues considered

The contractual definition of gross revenue in clause 19.1 of the licence agreement is binding and cannot be challenged.
Whether TRAI and TDSAT have jurisdiction to decide the validity of licence terms, including the definition of Adjusted Gross Revenue.
Whether the Union of India can raise issues after the earlier civil appeal was dismissed.
Whether licensees can challenge the computation of Adjusted Gross Revenue and on what grounds.
Whether specific revenue items (discounts, forex gains, interest, dividends, infrastructure sharing, etc.) fall within the definition of gross revenue.
The applicability of Accounting Standard‑9 versus the contractual definition.

Legislation cited

Companies Act, 1956s. 211(3A), s. 211(3B), s. 211(3C), s. 3
Income Tax Act, 1961s. 80IA(2a)
Indian Telegraph Act, 1885s. 4
Service Tax Act, 1994s. 67
Telecom Regulatory Authority of India Act, 1997s. 11(1)(a), s. 14(A)(1), s. 14(a)(i)

Subjects

telecom licencegross revenueadjusted gross revenuerevenue sharingTRAITDSATcontract interpretationaccounting standardsAS‑9res judicatainterest and penalty

Judgment

672 [2019]
SUPREME COURT 16 S.C.R. 672
REPORTS [2019] 16 S.C.R.

A UNION OF INDIA
v.
ASSOCIATION OF UNIFIED TELECOM
SERVICE PROVIDERS OF INDIA ETC.ETC.
B (Civil Appeal Nos. 6328-6399 of 2015)
OCTOBER 24, 2019
[ARUN MISHRA, S. ABDUL NAZEER
AND M. R. SHAH, JJ.]

C Indian Telegraph Act, 1885 – Licence Agreement granted by
the Govt. of India to the Telecom Service Providers – Definition
of gross revenue– Telecom sector liberalized in 1994– Licenses
issued to the service providers stipulated fixed licence fee payable
every year – Since, fixed license fee was very high an option was
given to the licensees to migrate from fixed licence fee to revenue
D sharing fee in 1999 – 15% Adjusted Gross Revenue (AGR) was
fixed as license fee which was reduced to 8% in 2013 – Service
providers ensured that they do not pay the licence fee based on
even an agreed “AGR”– Department raised demands – In 2003,
telecom operators filed petition before the Telecom Disputes
E Settlement and Appellate Tribunal (TDSAT) challenging the same
– Eventually, TDSAT by order dated. 30.08.2007 inter alia held
that AGR would include only the revenue from licence activities –
Challenged before Supreme Court in Union of India and another
v. Association of Unified Telecom Service Providers of India
reported as [2011] 14 SCR 657 wherein appeals by the Union of
F India were allowed and the order dated. 30.08.2007 was set aside
– Telecom operators again approached TDSAT challenging the
demands – TDSAT by the impugned order considered the specific
head of items to be included/excluded under the definition of AGR
– Held: Contractual definition of gross revenue is binding – Gross
G amount, as per the definition, is the gross revenue, without set-off,
is to be taken into consideration including the discounts given –
Licensees made futile attempt to submit that the revenue to be
considered would be derived from the activities under the licence;
whereas the aforesaid 2011 judgment between the parties holding
that the revenue from activities beyond the licence have to be
H
672
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 673
SERVICE PROVIDERS OF INDIA

included in adjusted gross revenue, is binding – Submission is also A
that the contract recognises the applicability of accounting
standards – It is only to maintain books of accounts – 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 (AS-9) cannot supersede it B
which is a general one – Stand of Department of
Telecommunications (DoT) is apparent that the gross revenue has
been clearly defined in the agreement – Further, all discounts and
commission etc. form part of the gross revenue for the purpose of
payment of licence fee– Forex gain is also to be accounted for as
part of gross revenue – Further, stand of TDSAT is approved in C
regard to assets/scrap, shares etc. – However, artificial bifurcation
of insurance claim made by the TDSAT cannot be accepted and is
contrary to contractual definition of gross revenue – Finding of
TDSAT to the extent it is contrary to revenue, set aside– Further,
amount of negative balance is a part of revenue and cannot be D
deducted from the gross revenue to be worked out as per the
definition of gross revenue u/AS-9– Finding of TDSAT set aside –
Also, 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 – Contrary finding recorded by
TDSAT, set aside – Late fee is also included explicitly in the E
definition of gross revenue and as such, it has to be computed as
its part – Finding of TDSAT, set aside – With respect to gains from
roaming charges and PSTN pass-through charges, the finding
recorded by TDSAT, to the extent it is contrary to the DOT, based
upon certain conditions, is set aside– Further, definition of gross F
revenue is wide enough to cover non-refundable deposits –
Finding recorded by the TDSAT concerning non-refundable
deposits not being part of the revenue, set aside – With respect to
licence fee demand where spectrum is not granted, the finding
recorded by TDSAT in the case of Videocon & S. Tel is agreed with
G
– Interest and dividend earned from the licensing and non-licensing
activities also have to form part of gross revenue for determination
of licence fee – Further, in respect of the bad-debts written off,
the findings by TDSAT are appropriate – Interest income from inter-
corporate loan has to be included in the gross revenue for working
out the licence fee – Also, DOT has rightly included the income of H
674 SUPREME COURT REPORTS [2019] 16 S.C.R.

A the licensee from IP registration under the CUG licence – 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
– Further, all the submissions raised on merits again have been
examined, uninfluenced by the plea of res judicata/constructive res
B judicata and no merit is found in the submissions raised – Interest
and penalty have rightly been levied – National Telecom Policy,
1994 – National Telecom Policy, 1999 – Telecom Regulatory
Authority of India Act, 1997 – ss.11(1)(a), 14(a)(i) r/w 14(A)(1),
18 – Companies Act, 1956 – ss. 3, 211(3A)-(3C) – Interpretation
of Statutes – noscitur a sociis; ejusdem generis – Principle of
C 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.
D 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:
E 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.
F
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.
G 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
H companies – Held: s.211 deals with the obligation of the company
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 675
SERVICE PROVIDERS OF INDIA

to comply with accounting standards – In case they do not comply, A
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 B
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 –
C
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
D
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 E
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 F
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
G
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 H
676 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 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
B
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
C 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
D
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.
E [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.
F 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
G 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
H an effective interest rate method. AS-9 recognises revenue as
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 677
SERVICE PROVIDERS OF INDIA

per the completed service method or percentage completion A
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 B
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 C
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 D
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,
E
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 F
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 G
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 H
678 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 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
B 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]

C 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
D 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
E 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
F 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
G 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
H to be confined to activities under the licence by way of AS-9. The
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 679
SERVICE PROVIDERS OF INDIA

reliance has been placed on statement made by DOT in the A
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
B
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] C
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 D
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 E
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 F
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 G
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 H
680 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 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
B 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
C 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
D 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
E 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
F 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]

G 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)
H 9 SCC 286 : [2011] 14 SCR 1 ; In Re : Natural
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 681
SERVICE PROVIDERS OF INDIA

Resources Allocation (2012) 10 SCC 1 : [2012] 9 SCR A
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
B
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. C
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 D
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 E
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 F
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 : G
[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. H
682 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 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
B 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
C 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.
D 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 AS-
9 as the definition of revenue in AS-9 cannot govern the definition
in Clause 19.1 of the licence agreement. What has been defined
E 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
F 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
G
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
H license fees under the licence agreement and the definition of
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 683
SERVICE PROVIDERS OF INDIA

revenue in AS-9 cannot govern. Reliance upon the affidavit filed A
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
B
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 C
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 D
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 E
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 F
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 G
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 H
684 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 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
B
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
C 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
D 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
E 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]
F 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
G
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
H Appliances Pvt. Ltd. v. Additional Commissioner of
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 685
SERVICE PROVIDERS OF INDIA

Commercial Taxes & Ors. (2018) 2 SCC 756 : [2018] A
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 Annexure-
II provides in the case of prepaid options, sale of pre-paid SIM
cards including full value of components charged therein. B
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 C
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 D
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. E
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 F
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, G
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 H
686 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 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
B
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
C 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:
D
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
E
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
F 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
G
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
H computation of gross revenue, otherwise, the benefit which is
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 687
SERVICE PROVIDERS OF INDIA

accruing will be ignored. Where profit or loss arises on account A
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
B
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 C
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 D
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 E
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, F
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
G
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 H
688 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 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
B
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
C 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]
D 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
E 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]
F
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
G 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
H under AS-9. Thus, the finding of the TDSAT cannot be said to
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 689
SERVICE PROVIDERS OF INDIA

align with the meaning of gross revenue in factual aspects of the A
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 B
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 C
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 D
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 E
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]
9. In re: Gains from roaming charges and PSTN pass-
F
through 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 G
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] 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
B
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
C 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
D 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]
E
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
F 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
G 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]
H
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 691
SERVICE PROVIDERS OF INDIA

12. In re: Income from interest and dividend A
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] B
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. C
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
D
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 E
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 F
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
G
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] 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
B 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
C 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
D 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
E 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]
F 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
G
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]
H 4 Suppl. SCR 323 – referred to.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 693
SERVICE PROVIDERS OF INDIA

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 B
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 C
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 D
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 E
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 F
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. G
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 H
694 SUPREME COURT REPORTS [2019] 16 S.C.R.

A (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
B 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.
Case Law Reference
[2011] 14 SCR 657 relied on Para 16
C
[2007] 12 SCR 136 distinguished Para 38
[2010] 3 SCR 91 referred to Para 58
[1975] 2 SCR 42 referred to Para 60

D [2004] 2 SCR 631 referred to Para 72
(2016) 15 SCC 315 referred to Para 73
[1966] SCR 500 referred to Para 77
[2009] 10 SCR 373 referred to Para 78
E [2018] 12 SCR 906 referred to Para 80
(2014) 8 SCC 866 referred to Para 81
[2011] 14 SCR 1 referred to Para 82
[2012] 9 SCR 311 referred to Para 86
F
[1972] 3 SCR 784 referred to Para 86
[1975] 3 SCR 254 referred to Para 87
[1994] 2 SCR 67 referred to Para 87
[1996] 5 Suppl. SCR 465 referred to Para 87
G
[2003] 2 SCR 574 referred to Para 87
[2003] 5 Suppl. SCR 930 referred to Para 87
[1963] 3 SCR 183 referred to Para 88

H [1994] 2 SCR 67 relied on Para 88
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 695
SERVICE PROVIDERS OF INDIA

[2010] 12 SCR 927 relied on Para 89 A
[2010] 12 SCR 725 relied on Para 90
[1986] 2 SCR 278 referred to Para 91
[2008] 17 SCR 1378 relied on Para 91
[2011] 12 SCR 473 relied on Para 92 B

[1992] 2 Suppl. SCR 257 relied on Para 93
(2005) 3 SCC 787 held inapplicable Para 110
[1980] 1 SCR 931 held inapplicable Para 110
C
[2012] 4 SCR 802 held inapplicable Para 111
[2018] 2 SCR 250 held inapplicable Para 111
(2017) 3 SCC 467 held inapplicable Para 111
(1982) 2 SCC 775 relied on Para 169
D
[1985] 2 SCR 686 referred to Para 179
[1970] 1 SCR 753 referred to Para 187 (a)
[1990] 1 SCR 369 referred to Para 187 (b)
(2003) 1 SCC 67 referred to Para 187 (c) E
[2004] 2 Suppl. SCR 202 referred to Para 187 (d)
[2015] 1 SCR 627 referred to Para 187 (e)
[2015] 1 SCR 627 referred to Para 187 (f)
[2001] 4 Suppl. SCR 323 referred to Para 187 (g) F
[1987] 3 SCR 607 referred to Para 190
[2009] 15 SCR 1187 referred to Para 191
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 6328-
6399 of 2015. G
From the Judgment and Order 23.04.2015 of the Telecom
Disputes Settlement and Appellate Tribunal in Petition No. 7 of 2003,
P. Nos. 82 of 2005, 57 of 2006, 284, 289, 290, 291, 292 of 2007, 33, 34,
42, 249, 256 of 2008, 69, 151, 201, 233, 234, 235, 244 of 2009, 106 of
2010, 388, 474, 475, 476, 477, 478, 480 of 2011, 43, 97, 98, 99, 100, H
696 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115,
116, 117, 118, 150, 170, 171, 172, 173, 174, 175, 176, 177, 178, 179, 180,
181, 198, 199, 200, 201, 202, 203, 204, 205 of 2012
With
Civil Appeal Nos. 6183-6255, 5832-5852, 5909, 6009, 5996, 5957,
B 5997, 5998, 6011, 6002, 6010, 6012, 8496-8505, 8493-8495, 5929, 5911,
5882, 5931, 5934, 5930, 6888-6895, 6003, 6004, 8506-8530, 8009-8017,
14624, 13550, 13705-13711, 13590, 13587, 13586, 13585, 13591, 13538,
13588, 13593, 13595-13596, 13584, 13574, 13681, 13581-13582, 13592,
13699, 13697, 13698, 13680 of 2015, 344, 498, 497, 493, 6022-6044 of
C 2016, 8646-8648 of 2018, 8275 of 2019.
Tushar Mehta, SG, Vikramjit Banerjee, ASG, Arijit Prasad, Arvind
Datar, Ramji Srinivasan, Ms. Pinaki Misra, C. A. Sundaram, Tarun
Gulati, Shyam Divan, Gopal Jain, Kavin Gulati, Ritin Rai,
B. Adinaraynan Rao, Dr. A. M. Singhvi, U. Hazarika, Chetan Sharma,
D Siddhartha Dave, Sr. Advs., Dhruv Tamta, H. Raghavendra Rao, Ms.
Shardha Deshmukh, Ms. Binu Tamta, Ms. Swati Ghildiyal, G. S.
Makker, Rajat Nair, Sarthak Raizada, Mansoor Ali Shokat, Ms. Nitin
Kala, Ms. Manali Singhal, Santosh Sachin, Ms. Vinita Sasidharan,
P. Ramesh Kumar, Abhijat P. Medh, Deepak Singh Rawat, Birjesh
Kumar Sinha, Hitesh Kumar Sharma, Ms. Meetali Ptolia, Mahesh
E Agarwal, Ms. Shally Bhasin, Chaitanya Safaya, Ms. Sayaree Basu
Malik, Vaibhav Niti, Ms.Surabhi Limaye, Ms. Vaishali Kalara,
Ms. Madhvi Agrawal, Ms. Ambika Mathur, E. C. Agrawala, Shashwat
Bajpai, Manjul Bajpai, Arjun Singh, Ms. Sugadha, K.R. Sasiprabhu,
Vishnu Sharma, Tushar Bhardwaj, Bhavuk Agarwal, Ms. Sylona
F Mahapatra, Nikhil Ramdev, Abhas Kshetrapal, Ms. Kritika Bhardwaj,
Somiran Sharma, Biju P. Raman, Jagjeet Sahani, Ms. Palak Verma, Ms.
B. Vijayalakshmi Menon, Rohit Choudhry, Ms. Preeti Kohli,
Pukhrambam Ramesh Kumar, Ms. Vibha Dhawan, Ms. Alvia Ahmed,
Harsh Kaushik, Percvial Billimoria, Amit Bhandari, V. P. Singh, Atul
N., Pridyumna Sharma, Nikhar Luthra, Prashanti Rao, Aamir Khan,
G Ms. Anvi Sood, Shaurya S. Vardhan, Rohit Saroj, Paul Roy Pashe,
Ms. Dharitry Phookan, Mrs. Anjani Aiyagari, Mrs. M. V. Rama,
Ms. Sumita Hazarika, Mohit D. Ram, Ms. Monisha Handa, Abhishek
Gupta, Ms. Shikha Sarin, Rahul Narayan, B. Krishna Prasad, Gautam
Narayan, Ms. Asmita Singh, Ms. Shivani Vij, Adithya Nair, D. S. Mahra,
H Jayant Kumar Mehta, Ms. Drishti Harpalani, Sajal Jain, Praveen Kumar,
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 697
SERVICE PROVIDERS OF INDIA

Saumyen Das, Rajan Narain, Naveen Kumar, Punit Dutt Tyagi, Navnit A
Kumar, M/s. Corporate Law Group, Gurmeet Singh Makker, Mrs. Anil
Katiyar, Faisal Sherwani, Gurpreet Singh Kahlon, Achal Gupta, Mayank
Grover, Gaurav Kejriwal, Mrs. Bina Gupta, Birjesh Kumar Sinha, Hitesh
Kumar Sharma, Arvind Kumar Sharma, Swetank Shantanu, Ravi
Chauhan, Pratap Shankar, Sanjeev Kr. Choudhary, Sunil Kumar Jain,
B
Kishore Kunal, Mohit Paul, Ms. Maneesha Dhir, Ms. Sunaina Phul,
Abhishek Kumar, Saransh Gupta, Rameshwar Prasad Goyal, Devashish
Bharuka, Ms. Pratyusha Priyadarshini, Ishan Nagar (for M/s. Parekh
& Co.). Rohit Mahajan, Rohit Tripathy, Pranav (for M/s. Dua
Associates), Advs. for the appearing parties.
C
The Judgment of the Court was delivered by
ARUN MISHRA, J.
1. In the appeals, the question involved is with respect to the
definition of gross revenue as defined in clause 19.1 of the licence
agreement granted by the Government of India to the Telecom Service D
Providers. The case has a chequered history and the scenario projected
is that even after the licensees agreeing with the revenue sharing regime
under the Telecom Policy of 1999 for the last two decades, definition
of gross revenue has been litigated upon, though the intendment was
to keep it free from the same and various disputes. Notwithstanding E
the fact that disputes have been raised, and despite the fact what is
the meaning to be given to gross revenue, was agreed upon between
the parties.The telecom sector was liberalized under the National
Telecom Policy, 1994 and various licenses were issued to companies
under Section 4 of the Indian Telegraph Act, 1885. The licences granted
to the service providers stipulated a fixed licence fee, which was F
payable by the service providers every year.
2. However, as the said fixed license fee was very high and the
telecom service providers consistently defaulted in making the payments,
the telecom service providers made a representation to the Government
of India for relief against the steep license fee. The said representation G
was considered and keeping the interest of the country, and the telecom
sector in mind, a new package, known as “the National Telecom Policy,
1999 Regime” giving an option to the licensees to migrate from fixed
licence fee to revenue sharing fee was made applicable in the year
1999. The National Telecom Policy, 1999 was devised after holding H
698 SUPREME COURT REPORTS [2019] 16 S.C.R.

A detailed deliberations and consultations with the telecom service
providers and the telecom industry. Clause III of the migration package
reads as under:
“(iii) The Licence fee as a percentage of gross revenue under
the license shall be payable w.e.f. 1.8.1999. The Government will
B take a final decision to charge the quantum of the revenue share
as licence fee after obtaining recommendations of the Telecom
Regulatory Authority of India (TRAI). Meanwhile, the
Government decided to fix 15% of the gross revenue of the
licensee as a provisional license fee. The gross revenue for this
C purpose would be the total revenue of the Licensee company
excluding the PSTN related call charges paid to DOT/MTNL and
service tax collected by the licensee on behalf of the Government
from their subscribers. On receipt of TRAI’s recommendation
and Government’s final decision, the final adjustment of
provisional dues will be effected depending upon the percentage
D of revenue share and the definition of revenue for this purpose
as may be finally decided.”
3. As mentioned, in the new Telecom Policy, 1999, the purpose
and objects for the shift to “Revenue Sharing Regime,” which, as such,
was more beneficial to the telecom service providers were:
E
Make available telephone on demand by the year 2002 and
sustain it after that to achieve a teledensity of 7 by the year
2005 and 15 by the year 2010.
Encourage the development of telecom in rural areas making
F it more affordable by suitable tariff structure and making
rural communication mandatory for all fixed service
providers.
Increase rural teledensity from the current level of 0.4 to 4
by the year 2010 and provide reliable transmission media
G in all rural areas.
Achieve telecom coverage of all villages in the country and
provide reliable media to all exchanges by the year 2002.
Provide Internet access to all district headquarters by the
H year 2000.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 699
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

Provide high-speed data and multimedia capability using A
technologies including ISDN to all towns with a population
higher than 2 lakh by the year 2002.
4. Considering the objectives and targets of the new Telecom
Policy, 1999, it appears that:
i. The Central Government gave a liberalised mode of B
payment by “revenue sharing” regime, which was the price
for parting with the exclusive privilege the Central
Government had.
ii. The Telecom Policy, 1999, was so designed that the
Government becomes a partner or sharer of “gross C
revenue.”
iii. From out of money received under the head of “Adjusted
Gross Revenue,” the Central Government took a conscious
decision to spend money to remote and uncovered areas,
rural areas, tribal areas, and hilly areas to ensure maximum D
tele-connectivity.
iv. The said objective was achieved, inter alia, by giving
subsidies for the establishment of telecom infrastructure in
such areas
5. Fifteen percent AGR was fixed as license fee under “revenue E
sharing,” which was reduced to 13 percent and lastly to 8 percent in
2013. It appears that the “revenue sharing” package turned out to be
very very beneficial to the telecom service providers, which is evident
from the continuing rise in the gross revenue, which is as follows:
Financial Year Gross Revenue earned by TSPs F
(ending in March) (in crores)
2004 4,855
2006 2,666
2007 89,108
2008 1,05,061
2009 1,43,044 G
2010 1,44,232
2011 1,60,251
2012 1,82,637
2013 2,04,221
2014 2,24,430
2015 2,37,676 H
700 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 6. However, the telecom service providers in spite of the financial
benefits of the package started to ensure that they do not pay the licence
fee to the public exchequer based on even an agreed “AGR”.
7. To arrive at the formula of “AGR,” the Draft Licence
Agreement was circulated to the telecom operators. It is pertinent to
B note that the Draft Licence Agreement provided clause 18.2, which
pertains to an annual license fee payable as a percentage of adjusted
gross revenue “AGR.” Gross Revenue defined under clause 19 of the
Draft Licence Agreement, reads as under:
“19. Definition of ‘Adjusted Gross Revenue’:
C 19.1 Gross Revenue:
The Gross Revenue shall be inclusive of installation charges, late
fees, sale proceeds of handsets (or any other terminal equipment
etc.), revenue on account of interest, dividend, value-added
services, supplementary services, access or interconnection
D charges, roaming charges, revenue from permissible sharing of
infrastructure and any other miscellaneous revenue, without any
set-off for related item of expense, etc.
19.2 For the purpose of arriving at the “Adjusted Gross Revenue
(AGR)”, the following shall be excluded from the Gross Revenue
E to arrive at the AGR:
I. PSTN/PLMN related call charges (Access Charges)
actually paid to other eligible/entitled telecommunication
service providers within India;
II. Roaming revenues actually passed on to other eligible/
F
entitled telecommunication service providers and;
III. Service Tax on provision of service and Sales Tax
actually paid to the Government if gross revenue had
included as component of Sales Tax and Service Tax.
G 19.3 Applicable AGR in respect of Spectrum usage charge shall
be as given under Part VII of this agreement.”
8. Along with the Draft Licence Agreement, all annexures to the
license, including the format of Statement of Revenue and Licence Fee
(Appendix-II to Annexure-II) were circulated. As per the form of the
H Statement of Revenue and Licence Fee, the telecom operators were
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 701
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

required to submit the relevant data/revenue earned by them so that A
the ultimate AGR/license fee can be determined.
9. That vide communication dated 01.03.2001, the Association
of Basic Telecom Operators submitted their comments on Draft License
Agreement for basic service licenses. The comments on the revenue
to levy the license fee were as under: B
“For ascertaining the Revenue, income is proposed to be
considered on an accrual basis while deductible expenses are
proposed to be considered on an actual or pass-through basis.
Also, logically, the LICENSEE should be required to pay license
fee only on that income which he has actually obtained. In view C
of this, the above mode of revenue is inequitable. Hence, both
the income as well as deductible expenses should be computed
on actual basis to arrive at an equitable and fair figure of revenue
on which the License Fee can be levied.
Income from interest, dividend, etc. are also proposed to be D
included while computing the Revenue. Such income is purely
non-operational income as it is earned from sources other than
the provision of SERVICE and is recognised to be so by all
statutory authorities including the ICAI, SEBI and the Stock
Exchanges. Hence, no license fee should be levied on such
income, and accordingly, such income should not be included for E
computing the figure of REVENUE.
All such deposits as are credited to the P&L Account are
proposed to be covered in REVENUE. This is irrational since
these ....... Further, all bad debts recovered and write-back of
provisions and other debits for earlier years are also proposed F
to be included in REVENUE. However, no deduction on account
of bad debts provisions, etc. for the current year is allowed to
while computing REVENUE. This is both inequitable, irrational,
and against the fundamental accounting concepts. Such additions
on account of write-back should be allowed only in licensees are G
given the corresponding benefit of the very same expenses from
the current period’s income for computing REVENUE.
Lastly, the definition should be a comprehensive one comprising
an exhaustive (and not indicative) list of items which will be
included in the expression REVENUE. Any indicative list is
H
702 SUPREME COURT REPORTS [2019] 16 S.C.R.

A bound to give rise to unnecessary disputes in the future, which
will be detrimental to the LICENSEES in most cases.”
10. It appears that after that the licenses were issued in favour
of the respective telecom operators. As observed hereinabove, the
telecom operators availed the benefit of migration package. However,
B thereafter when the department raised the demands on the service
providers, in the year 2003 the Association of Basic Telecom Operators
and respective telecom operators filed a petition before the Telecom
Disputes Settlement and Appellate Tribunal, New Delhi (hereinafter
referred to as the ‘TDSAT’) under Section 14(a)(i) read with Section
14(A) (1) of the Telecom Regulatory Authority of India Act, 1997
C (hereinafter referred to as the “TRAI Act”) being Petition No. 07 of
2003. It was a case of the telecom operators that the department was
supposed to determine the quantum based on the recommendations of
the TRAI. According to the telecom operators, the department had
illegally included various elements of income in the definition of the term
D “AGR” which do not accrue from the operations under the license viz.,
dividend income, interest income on short term investment, discounts
on calls, revenues from other activities separately licensed,
reimbursements under the Universal Service Fund (USF) etc. The
telecom operators heavily relied upon the recommendations issued by
the TRAI on 31.08.2000, making detailed recommendations on the terms
E and conditions for issuance of licenses to new Basic Operators, more
particularly the recommendations made by the TRAI with the revenue
sharing of 12%, 10% and 8% for categories A, B and C Circles
respectively ought to be levied on the Basic Operators.
11.On merits and components of the AGR, the telecom operators
F submitted the following grounds:
“48) BECAUSE logically the LICENSEE should be required
to pay licence fee only on that income which he has
actually obtained;

G 50) BECAUSE income from interest, dividend, etc., which
are proposed to be included while computing the
Revenue are purely non-operational income as it is
earned from sources other than the provision of
SERVICE and is recognized to be so by all statutory
authorities including the ICAI, SEBI and the Stock
H Exchange.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 703
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

51) BECAUSE no licence fee should be levied on such A
income and accordingly such income should not be
included for computing the figure of REVENUE;
52) BECAUSE all such deposits as are credited to the P&L
Account are proposed to be covered in REVENUE
which is irrational; B
53) BECAUSE further, all bad debts recovered and write-
back of provisions and other debits for earlier years are
also proposed to be included in REVENUE;
54) BECAUSE no deduction on account of bad debts,
provisions, etc. for the current year are allowed to be C
made while computing REVENUE;
57) BECAUSE the definition should be a comprehensive
one comprising an exhaustive (and not indicative) list of
items which will be included in the expression
REVENUE;” D
12. It appears that no other grounds were raised. The telecom
operators in Petition No.7 of 2003 prayed as under:
“a) declare that Adjusted Gross Revenues can only relate
to revenues directly arising out of telecom operations
E
licensed under Section 4 of the Indian Telegraph Act,
1885 (after adjustment of expenses and write-offs and
revenues not directly attributable to the licensed telecom
activities and miscellaneous and other items indicated
in the DoT letter dated 26.7.01, including interest income
and dividend income, value of rebates, discounts, free F
calls and reimbursement from the USO fund etc., ought
not be included in the Adjusted Gross Revenues for the
purposes of computation License Fee;
b) set aside the DoT letters dated 7.5.03, attempting to
adjust/set off their claims relating to Adjusted Gross G
Revenue from out of the amounts due and refundable
to the Petitioners consequent to the Judgements of this
Hon’ble Tribunal and the Hon’ble Supreme Court;
c) set aside the DoT demand letters inter alia dated 21.8.02,
9.8.02, 14/21.1.03, 23.1.03, 7.3.03 and similar demands H
704 SUPREME COURT REPORTS [2019] 16 S.C.R.

A raised against the BSOs claiming Revenue Share on
interest income and other miscellaneous heads which are
contrary to the Recommendations of the TRAI;
d) direct the DoT to implement the recommendations of
the TRAI dated 31.8.00 and 31.10.00;
B e) direct the DoT to refund the BSOs all such excess
amounts together with interest @ 12% per annum that
may have been collected by it under its letter dated
26.7.01 or 7.5.03 or otherwise, contrary to the
recommendations of the TRAI dated 31.10.00.”
C 13. The objections described above can be said to be the first
set of the grounds by the telecom operators raised at the first instance
and the earliest. It appears that after TDSAT remitted the matter to
the TRAI by observing that there was no adequate consultation with
the TRAI before finalising the AGR and the components which form
D the AGR. While remitting the matter to the TRAI, the TDSAT made
some observations regarding the inclusion in gross revenue of the
licensee revenue derived from non-licensed activities. The TDSAT
directed listing for further directions/hearing after the recommendations
of the TRAI are received or in the first week of October 2006,
whichever is earlier (Order dated 07.07.2006, Coram: Justice N.
E Santosh Hegde, Chairperson, and D.P. Sehgal, Member).
14. That in the order dated 07.07.2006, the Tribunal rejected the
contentions of the UOI and held that under Section 4 of the Indian
Telegraph Act, 1885, the Central Government can take percentage of
the share of gross revenue of a licensee realised from activities of the
F licensee under the licence and therefore revenue received by a licensee
from activities beyond licence activities would be outside the purview
of Section 4 of the Telegraph Act. The Tribunal further held that Section
11(1)(a) of the TRAI Act mandates the Central Government to seek
recommendations from the TRAI on the licence fee payable by the
G licensee and as the TRAI has made no effective consultation, the matter
should be remitted to the TRAI and the TRAI can consider the issue
and send its recommendations to the Tribunal. At this stage, it is required
to be noted that the Union of India challenged the order dated
07.07.2006 of the Tribunal before this Court in Civil Appeal No. 84 of
2007 under Section 18 of the TRAI Act. During the pendency of the
H civil appeal, the TRAI sent its recommendations as to the AGR which
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 705
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

have been sought by the Tribunal vide its order dated 07.07.2006. A
Therefore, when Civil Appeal No.84/2007 came up for hearing before
this Court on 19.01.2007, this Court dismissed the said appeal with the
liberty to the Union of India to urge all contentions raised in the civil
appeal before the Tribunal.
15. It appears that after that the TRAI sent its recommendations B
to the TDSAT. At this stage, it is required to be noted that though in
view of the order passed by this Court dated 19.01.2007 passed in Civil
Appeal No. 84/2007, a liberty was reserved in favour of the Union of
India to urge all contentions raised in the civil appeal and accordingly
the Union of India submitted that the Union of India is entitled to reopen
C
the issue whether the validity of the definition of AGR in the Licence
Agreement could be questioned before the Tribunal including the
submission that the AGR shall also include the revenue from activities
outside the license, the TDSAT in its fresh order dated 30.08.2007 did
not permit the Union of India to raise the aforesaid issues, and the
Tribunal held that its earlier order dated 07.07.2006 having become final, D
it cannot be reopened after the disposal of Civil Appeal No. 84/2007.
The Tribunal held that it’s finding in the earlier order dated 07.07.2006
that the adjusted gross revenue “AGR” will include only revenue arising
from licence activities and not revenue from activities outside the licence
cannot be re-agitated by the Union of India. Therefore, the TDSAT
E
held that the AGR would include only the revenue from licence activities.
After that the Tribunal in its fresh order dated 30.08.2007 considered
the recommendations of the TRAI regarding the heads of the revenue
to be included and the heads of the revenue to be excluded from the
AGR and decided as follows:
F
“(i) The Tribunal accepted the recommendation of TRAI that
income from dividend even though part of the revenue
does not represent revenue from licensed activity and,
therefore, cannot be included in the adjusted gross
revenue.
G
(ii) The Tribunal accepted the recommendation of TRAI that
interest earned on investment of savings made by a
licensee after meeting all liabilities including liability on
account of the share of the Government in the gross
revenue cannot be included in the adjusted gross
revenue, but, interest on investment of funds received H
706 SUPREME COURT REPORTS [2019] 16 S.C.R.

A by a licensee by way of deposits from customers on
account of security against charges and on account of
concessions given in the charges payable for using the
telecom services have to be included in the adjusted
gross revenue as these are related to telecom service,
which is part of the licensed activity.
B
(iii) The Tribunal did not fully accept the recommendation
of TRAI on capital gains and held that sale of assets of
a licensee such as immovable properties, securities,
warrants or debt instruments are not part of the licensed
activity and, therefore, capital gains earned by a licensee
C on such sale of assets cannot form part of the adjusted
gross revenue.
(iv) The Tribunal accepted the recommendation of TRAI that
gains from foreign exchange rate fluctuations are also
not part of the licensed activity of telecom service
D providers and, therefore, cannot constitute part of the
adjusted gross revenue.
(v) The Tribunal did not fully accept the recommendation
of TRAI on the reversal of provisions like bad debts,
taxes and vendors’ credits and held that all these
E reversals have to be excluded from the adjusted gross
revenue.
(vi) The Tribunal also accepted the recommendation of
TRAI that rent from property owned by the licensee
should be excluded from the adjusted gross revenue,
F provided it is established that the property is not in any
way connected with establishing, maintaining and
working of telecommunication.
(vii) The Tribunal accepted the recommendation of TRAI that
income from renting and leasing of passive
G infrastructures like towers, dark fiber, etc. should be part
of the adjusted gross revenue as they are parts of the
licensed activity of the licensee.
(viii) The Tribunal accepted the recommendation of TRAI that
revenue from sale of tenders, directories, forms,
H forfeiture of deposits/earnest money in relation to
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 707
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

telecom service should form part of the adjusted gross A
revenue, but held that management fees, consultancy
fees and training charges from telecom service should
not form part of the adjusted gross revenue as these
activities do not require a licence.
(ix) The Tribunal held that payments received on behalf of B
the third party should not form part of the adjusted gross
revenue and did not accept the recommendation of
TRAI in this regard.
(x) The Tribunal did not accept the recommendation of
TRAI that the revenue from TV uplinking and internet C
service should form part of the adjusted gross revenue
as these activities are under a separate licence.
(xi) The Tribunal accepted the recommendation of TRAI that
sale of handsets or telephone equipment bundled with
telecom service should be part of the adjusted gross D
revenue because such sale comes within the licensed
activity.
(xii) The Tribunal accepted the recommendation of TRAI that
receipts from USO fund will not form part of the
adjusted gross revenue. E
(xiii) The Tribunal accepted the recommendation of TRAI that
revenue receipts on account of ADC (access deficit
charge) should form part of the adjusted gross revenue.
(xiv) The Tribunal accepted the recommendation of TRAI that
costs on account of port charges, interconnection set- F
up charges, leased lines, sharing of infrastructure,
roaming signalling charges and content charges should
form part of the adjusted gross revenue.
(xv) The Tribunal did not accept the recommendation of
TRAI that bad debts, waivers, and discounts should form G
part of the adjusted gross revenue and held that such
losses incurred by a licensee should be excluded from
the adjusted gross revenue.
(xvi) The Tribunal accepted the recommendation of TRAI that
service tax payable by the licensee should be included H
708 SUPREME COURT REPORTS [2019] 16 S.C.R.

A or excluded from the adjusted gross revenue on an
accrual basis and also accepted the recommendation of
TRAI that interconnection usage should also be included
or excluded from the adjusted gross revenue on an
accrual basis.
B (xvii) Tribunal did not accept recommendation of TRAI that
its recommendations with regard to items, which are to
be included or excluded from the gross revenue, should
be effective from a prospective date and instead held
that the findings of the Tribunal with regard to items,
which are included or excluded from the adjusted gross
C
revenue, will be effective from the date the licensee
approached the Tribunal.”
16. A fresh final order passed by the TDSAT dated 30.08.2007
was the subject matter of appeal before this Court in the case of Union
of India and another v. Association of Unified Telecom Service
D
Providers of India, (2011) 10 SCC 543. This Court formulated the
following substantial questions of law:
“(i) Whether after dismissal of Civil Appeal No. 84 of 2007
of the Union of India against the order dated 7-7-2006
of the Tribunal, by this Court by order dated 19-1-2007
E
[Union of India v. Assn. of Unified Telecom Service
Providers of India, Civil Appeal No. 84 of 2007
decided on 19-1-2007 (SC)] , the Union of India can
agitate the question decided in the order dated 7-7-2006
that the adjusted gross revenue will include only revenue
F arising from licensed activities and not revenue from
activities outside the licence of the licensee.
(ii) Whether TRAI and the Tribunal have the jurisdiction to
decide the validity of the terms and conditions of the
licence which had been finalised by the Central
G Government and incorporated in the licence agreement
including the definition of adjusted gross revenue.
(iii) Whether as a result of the Union of India not filing an
appeal against the order dated 7-7-2006 of the Tribunal
passed in favour of some of the licensees, the said order
H dated 7-7-2006 had not become binding on the Union
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 709
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

of India with regard to the issue that revenue realised A
from activities beyond the licensed activities cannot be
included in the adjusted gross revenue.
(iv) Whether the licensee can challenge the computation of
adjusted gross revenue, and if so, at what stage and on
what grounds.” B
17. While answering issue No.1, this Court took note of the
expressed language of the order dated 19.01.2007 passed in Civil Appeal
No.84 of 2007 and held that it was open for the Union of India to raise
all contentions which were raised in Civil Appeal No.84 of 2007 including
the following grounds: C
“1. Because the judgment and order dated 7-7-2006 passed
by the TDSAT are wrong, erroneous, contrary to law
and deserves to be set aside.
2. Because the TDSAT failed to appreciate that the
migration package accepted and acted upon by the D
respondents herein itself provided for the definition of
gross revenue and adjusted gross revenue.
3. Because the TDSAT failed to appreciate that the
licensees unconditionally accepted the migration
package, exploited the licence on the terms and E
conditions mentioned therein and after that challenged
the definition of adjusted gross revenue.
4. TDSAT failed to appreciate that it had no jurisdiction or
power to examine the correctness of terms of the licence
which had been unconditionally accepted and acted upon F
by the licensees.
5. Because the TDSAT failed to appreciate that in fact,
some licensees obtained a new licence which contains
the definition of ‘gross revenue’ and ‘adjusted gross
revenue’ which has been unconditionally accepted by G
the appellants (sic respondents).
6. Because the TDSAT failed to appreciate that under
Section 4 of the Telegraph Act, 1885 it is the exclusive
privilege of the Central Government to establish,
maintain and work telegraph/telecom and this privilege H
710 SUPREME COURT REPORTS [2019] 16 S.C.R.

A can be given to the private parties by granting licences
on such terms and conditions as the Central Government
thinks fit and appropriate.”
18. This Court specifically observed and held that the Union of
India could urge before the Tribunal all contentions under the Grounds
B 1 to 6, extracted above, including the assertion that the definition of
adjusted gross revenue “AGR” as given in the licence could not be
challenged by the licensees before the Tribunal and will include all items
of revenue mentioned in the definition of adjusted gross revenue in the
licence.
C 19. While answering second substantial question of law, namely,
whether TRAI and the Tribunal have the jurisdiction to decide the
validity of the terms and conditions of the licence including the definition
of adjusted gross revenue finalised by the Central Government and
incorporated in the licence, this Court observed and held as under:
D “37. A bare perusal of sub-section (1) of Section 4 of the
Telegraph Act shows that the Central Government has the
exclusive privilege of establishing, maintaining, and working
telegraphs. This would mean that only the Central Government,
and no other person, has the right to carry on telecommunication
activities.
E
39. The proviso to sub-section (1) of Section 4 of the Telegraph
Act, however, enables the Central Government to part with this
exclusive privilege in favour of any other person by granting a
licence in his favour on such conditions and in consideration of
such payments as it thinks fit. As the Central Government owns
F the exclusive privilege of carrying on telecommunication activities
and as the Central Government alone has the right to part with
this privilege in favour of any person by granting a licence in his
favour on such conditions and in consideration of such terms as
it thinks fit, a licence granted under the proviso to sub-section
G (1) of Section 4 of the Telegraph Act is in the nature of a contract
between the Central Government and the licensee.
40. A Constitution Bench of this Court in State of
Punjab v. Devans Modern Breweries Ltd. [(2004) 11 SCC 26]
relying on Har Shankar case [(1975) 1 SCC 737] and Panna
H Lal v. State of Rajasthan [(1975) 2 SCC 633] has held in para
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 711
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

121 at p. 106 that issuance of liquor licence constitutes a contract A
between the parties. Thus, once a licence is issued under the
proviso to sub-section (1) of Section 4 of the Telegraph Act, the
licence becomes a contract between the licensor and the
licensee. Consequently, the terms and conditions of the licence,
including the definition of adjusted gross revenue in the licence
B
agreement are part of a contract between the licensor and the
licensee. We have to, however, consider whether the enactment
of the TRAI Act in 1997 has in any way affected the exclusive
privilege of the Central Government in respect of the
telecommunication activities and altered the contractual nature
of the licence granted to the licensee under the proviso to sub- C
section (1) of Section 4 of the Telegraph Act.
41. Section 2(e) of the TRAI Act quoted above defines “licensee”
to mean any person licensed under sub-section (1) of Section 4
of the Telegraph Act for providing specified public
telecommunication services and Section 2(ea) defines “licensor” D
to mean the Central Government or the telegraph authority who
grants a licence under Section 4 of the Telegraph Act. Sub-
section 2(k) defines “telecommunication service” very widely so
as to include all kinds of telecommunication activities. These
provisions under the TRAI Act do not affect the exclusive
privilege of the Central Government to carry on E
telecommunication activities nor do they alter the contractual
nature of the licence granted under the proviso to sub-section
(1) of Section 4 of the Telegraph Act.
43. These provisions in the TRAI Act show that notwithstanding
subsection (1) of Section 4 of the Telegraph Act vesting exclusive F
privilege in the Central Government in respect of
telecommunication activities and notwithstanding the proviso to
sub-section (1) of Section 4 of the Telegraph Act vesting in the
Central Government the power to decide on the conditions of
licence including the payment to be paid by the licensee for the
G
licence, TRAI has been conferred with the statutory authority
to make recommendations on the terms and conditions of the
licence to a service provider and the Central Government was
bound to seek the recommendations of TRAI on such terms and
conditions at different stages, but the recommendations of TRAI
are not binding on the Central Government, and the final decision H
712 SUPREME COURT REPORTS [2019] 16 S.C.R.

A on the terms and conditions of a licence to a service provider
rested with the Central Government. The legal consequence is
that if there is a difference between TRAI and the Central
Government with regard to a particular term or condition of a
licence, as in the present case, the recommendations of TRAI
will not prevail and instead the decision of the Central Government
B will be final and binding.
44. In contrast to this recommendatory nature of the functions
of TRAI under clause (a) of sub-section (1) of Section 11 of
the TRAI Act, the functions of TRAI under clause (b) of sub-
section (1) of Section 11 of the TRAI Act are not
C recommendatory. This will be clear from the very language of
clause (b) of sub-section (1) of Section 11 of the TRAI Act which
states that TRAI shall discharge the functions enumerated under
sub-clauses (i), (ii) and (ix) under clause (b) of sub-section (1)
of Section 11 of the TRAI Act. Under clause (c) of sub-section
D (1) of Section 11 of the TRAI Act, TRAI performs the function
of levying fees and other charges in respect of different services
and under clause (d) of sub-section (1) of Section 11, the Central
Government can entrust to TRAI other functions. These
functions of TRAI under clauses (c) and (d) of sub-section (1)
of Section 11 of the TRAI Act are also not recommendatory in
E nature. That the functions of TRAI under clause (a) are
recommendatory while the functions of TRAI under clauses (b),
(c) and (d) are not recommendatory will also be clear from
provisos first to fifth which refer to the recommendations of TRAI
under clause (a) of sub-section (1) of Section 11 of the TRAI
Act and not to clauses (b), (c) and (d) of sub-section (1) of
F
Section 11 of the TRAI Act.
45. The scheme of the TRAI Act therefore is that TRAI being
an expert body discharges recommendatory functions under
clause (a) of sub-section (1) of Section 11 of the TRAI Act and
discharges regulatory and other functions under clauses (b), (c)
G
and (d) of sub-section (1) of Section 11 of the TRAI Act. TRAI
being an expert body, the recommendations of TRAI under clause
(a) of sub-section (1) of Section 11 of the TRAI Act have to be
given due weightage by the Central Government, but the
recommendations of TRAI are not binding on the Central
H Government. On the other hand, the regulatory and other
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 713
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

functions under clauses (b), (c) and (d) of sub-section (1) of A
Section 11 of the TRAI Act have to be performed independent
of the Central Government and are binding on the licensee subject
to only appeal in accordance with the provisions of the TRAI
Act.
46. A reading of Section 14(a)(i) of the TRAI Act would show B
that the Tribunal has the power to adjudicate any dispute between
a licensor and a licensee. A licensor, as we have seen, has been
defined under Section 2(ea) of the TRAI Act to mean the Central
Government or the Telegraph Authority who grants a licence
under Section 4 of the Telegraph Act and a licensee has been
C
defined in Section 2(e) of the TRAI Act to mean any person
licensed under sub-section (1) of Section 4 of the Telegraph Act
providing specified telecommunication services. The word
“means” in Sections 2(e) and 2(ea) of the TRAI Act indicates
that the definitions of licensee and licensor in Sections 2(e) and
2(ea) of the TRAI Act are exhaustive and therefore would not D
have any other meaning. As Justice G.P. Singh puts it in his
book Principles of Statutory Interpretation, 12th Edn., at pp.
179-80:
“… When a word is defined to ‘mean’ such and such, the
definition is prima facie restrictive and exhaustive;” E
47. A dispute between a licensor and a licensee referred to in
Section 14(a)(i) of the TRAI Act, therefore, is a dispute after a
person has been granted a licence by the Central Government
or the Telegraph Authority under sub-section (1) of Section 4 of
the Telegraph Act and has become a licensee and not a dispute F
before a person becomes a licensee under the proviso to sub-
section (1) of Section 4 of the Telegraph Act. In other words,
the Tribunal can adjudicate the dispute between a licensor and a
licensee only after a person had entered into a licence agreement
and become a licensee and the word “any” in Section 14(a) of
the TRAI Act cannot widen the jurisdiction of the Tribunal to G
decide a dispute between a licensor and a person who had not
become a licensee. The result is that the Tribunal has no
jurisdiction to decide upon the validity of the terms and conditions
incorporated in the licence of a service provider, but it will have
the jurisdiction to decide “any” dispute between the licensor and H
714 SUPREME COURT REPORTS [2019] 16 S.C.R.

A the licensee on the interpretation of the terms and conditions of
the licence.
48. Coming now to the facts of the cases before us, Clause (iii)
of the Letter dated 22-7-1999 of the Government of India,
Ministry of Communications, Department of Telecommunications,
B to the licensees quoted above made it clear that the licence fee
was payable with effect from 1-8-1999 as a percentage of gross
revenue under the licence and the gross revenue for this purpose
would be total revenue of the licensee company excluding the
PSTN related call charges paid to DoT/MTNL and service tax
C calculated by the licensee on behalf of the Government from the
subscribers. It was also made clear in the aforesaid Clause (iii)
that the Government was to take a final decision after receipt
of TRAI’s recommendation on not only the percentage of
revenue share but also the definition of revenue. In accordance
with this Clause (iii), the Government took the final decision on
D the definition of adjusted gross revenue and incorporated the
same in the licence agreement. Once the licensee had accepted
Clause (iii) of the Letter dated 22-7-1999 that the licence fee
would be a percentage of the gross revenue which would be the
total revenue of the licensee company and had also accepted that
E the Government would take a final decision not only with regard
to the percentage of revenue share but also the definition of
revenue for this purpose, the licensee could not have approached
the Tribunal questioning the validity of the definition of adjusted
gross revenue in the licence agreement on the ground that
adjusted gross revenue cannot include revenue from activities
F
beyond the licence.
49. If the wide definition of adjusted gross revenue so as to
include revenue beyond the licence was in any way going to
affect the licensee, it was open for the licensees not to undertake
G activities for which they do not require licence under Section 4
of the Telegraph Act and transfer these activities to any other
person or firm or company. The incorporation of the definition
of adjusted gross revenue in the licence agreement was part of
the terms regarding payment which had been decided upon by
the Central Government as a consideration for parting with its
H rights of exclusive privilege in respect of telecommunication
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 715
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

activities and having accepted the licence and availed the A
exclusive privilege of the Central Government to carry on
telecommunication activities, the licensees could not have
approached the Tribunal for an alteration of the definition of
adjusted gross revenue in the licence agreement.
50. Regarding the recommendations of TRAI under Section B
11(1)(a)(i) of the TRAI Act, we find that the Tribunal in its order
dated 7-7-2006 has held that the opinion of the renowned expert
on Accountancy that any other definition of adjusted gross
revenue would lead to reduction of licence fee liability by way
of accounting jugglery was not placed before TRAI and as a C
result there was no proper and effective consultation with TRAI
and the weightage that was due to the recommendations of TRAI
was not given effect to. In our considered opinion, if the Tribunal
found that there was no effective consultation with TRAI on the
opinion of the expert on accountancy, the Tribunal could have at
best, if it had the jurisdiction to decide the dispute, directed TRAI D
to consider the opinion of the expert on accountancy and send
its recommendations to the Central Government and directed the
Central Government to consider such fresh recommendations of
TRAI as provided in the provisos to Section 11(1) of the TRAI
Act. Instead, the Tribunal has considered the recommendations E
of TRAI and passed the impugned fresh order dated 30-8-2007
contrary to the very provisions of Section 11(1)(a) of the TRAI
Act and the provisos thereto. At any rate, as the Central
Government has already considered the fresh recommendations
of TRAI and has not accepted the same and is not agreeable to
F
alter the definition of adjusted gross revenue, the decision of the
Central Government on the point was final under the first proviso
and the fifth proviso to Section 11(1) of the TRAI Act, 1997.
53. In State of U.P. v. Devi Dayal Singh [(2000) 3 SCC 5] a
truck owner, Devi Dayal Singh, challenged the right of the State
G
Government to recover by way of toll under Section 2 of the
Tolls Act, 1851, an amount for the actual construction of the
bridge. This Court held that Section 2 of the Tolls Act, 1851 which
enables the State Government to levy toll at such rates “as it
thinks fit” and the only restriction is latent in the word “toll” itself.
This was therefore not a case of a dispute between the H
716 SUPREME COURT REPORTS [2019] 16 S.C.R.

A Government and the contractor where the contractor had
challenged a stipulation of the contract. In the present case, on
the other hand, the licensees had accepted the terms of the
licence and after having taken the benefits of the licence are now
trying to wriggle out from the terms of the licence and in particular
the definition of the adjusted gross revenue.
B
55. On the other hand, we find from the long line of decisions
in Har Shankar v. Excise & Taxation Commr. [(1975) 1 SCC
737], Govt. of A.P. v. Anabeshahi Wine & Distilleries (P)
Ltd. [(1988) 2 SCC 25 : 1988 SCC (Tax) 147], Excise
Commr. v. Issac Peter [(1994) 4 SCC 104], State of
C
Orissa v. Narain Prasad [(1996) 5 SCC 740], State of
M.P. v. KCT Drinks Ltd. [(2003) 4 SCC 748], State of
Punjab v. Devans Modern Breweries Ltd. [(2004) 11 SCC
26], Shyam Telelink Ltd. v. Union of India [(2010) 10 SCC 165
: (2010) 4 SCC (Civ) 99] and in Bharti Cellular Ltd. v. Union
D of India [(2010) 10 SCC 174 : (2010) 4 SCC (Civ) 108], that
this Court has consistently taken a view that once a licensee has
accepted the terms and conditions of a licence, he cannot question
the validity of the terms and conditions of the licence before the
court. We, therefore, hold that TRAI and the Tribunal had no
jurisdiction to decide on the validity of the definition of adjusted
E
gross revenue in the licence agreement and to exclude certain
items of revenue which were included in the definition of adjusted
gross revenue in the licence agreement between the licensor and
the licensee.”
20. While considering the substantial question of law no.3, this
F
Court observed and held in paragraph 59 as under:
“59. Thus, the Tribunal in its order dated 7-7-2006 has not just
decided a dispute on the interpretation of adjusted gross revenue
in the licence agreement but has decided on the validity of the
definition of adjusted gross revenue in the licence agreement. As
G
we have already held, the Tribunal had no jurisdiction to decide
on the validity of the terms and conditions of the licence, including
the definition of adjusted gross revenue incorporated in the licence
agreement. Hence, the order dated 7-7-2006 of the Tribunal
insofar as it decides that revenue realised by the licensee from
H activities beyond the licence will be excluded from adjusted gross
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 717
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

revenue dehors the definition of adjusted gross revenue in the A
licence agreement is without jurisdiction and is a nullity, and the
principle of res judicata will not apply.”
21. While answering and considering the fourth substantial
question of law, namely, whether the licensee can challenge the
computation of adjusted gross revenue, and if so, at what stage and on B
what grounds, this Court observed and held in paragraph 63 as follows:
“63. Section 14(a)(i) of the TRAI Act, as we have seen, provides
that the Tribunal can adjudicate any dispute between the licensor
and the licensee. One such dispute can be that the computation
of adjusted gross revenue made by the licensor and the demand C
raised on the basis of such computation is not in accordance with
the licence agreement. This dispute, however, can be raised by
the licensee, after the licence agreement has been entered into
and the appropriate stage when the dispute can be raised is when
a particular demand is raised on the licensee by the licensor.
When such a dispute is raised against a particular demand, the D
Tribunal will have to go into the facts and materials on the basis
of which the demand is raised and decide whether the demand
is in accordance with the licence agreement and in particular the
definition of adjusted gross revenue in the licence agreement and
can also interpret the terms and conditions of the licence E
agreement. We, however, find from the order dated 7-7-2006 that
instead of challenging any demands made on them, the licensees
have questioned the validity of the definition of adjusted gross
revenue in the licences given to them and the Tribunal has finally
decided in its order dated 30-8-2007 as to what items of revenue
would be part of adjusted gross revenue and what items of F
revenue would not be part of adjusted gross revenue without
going into the facts and materials relating to the demand on a
particular licensee.”
22. Ultimately, this Court allowed the appeals preferred by the
Union of India and set aside the order dated 30.08.2007 passed by the G
TDSAT. Thereafter, in paragraph 67, this Court clarified as under:
“67. We have delivered today the judgment in these cases
(supra paras 1-66) and while answering the last substantial
question of law, we have held that when a particular demand is
raised on a licensee, the licensee can challenge the demand H
718 SUPREME COURT REPORTS [2019] 16 S.C.R.

A before the Tribunal and the Tribunal will have to go into the facts
and materials on the basis of which the demand is raised and
decide whether the demand is in accordance with the licence
agreement and in particular the definition of adjusted gross
revenue in the licence agreement and can also interpret the terms
and conditions of the licence agreement.”
B
23. After that, the respective telecom operators again approached
the TDSAT challenging the demand notices/demand. The TDSAT by
the impugned order has considered the specific head of items to be
included or excluded under the definition of AGR. The TDSAT examined
the following heads:
C
“1. Gain on sale of Capital Assets and receipt from the sale
of scrap.
2. Insurance claim in respect of Capital Assets.
3. Discounts and Commissions.
D
Discounts allowed on international roaming.
Commission and discount allowed to distributors on sale
of pre-paid vouchers.
4. Waiver of Late Fee.
E
5. Amount of negative balance of the pre-paid customer.
6. Roaming Charges and PSTN pass-through charges
(PSTN – Public Switch Telephone Network)
7. Reimbursement of Infrastructure operating expenses.
F
8. Gain from foreign exchange fluctuation.
9. Revenue from 214 FCC License, USA (in the case of
Bharti BILGO)
10. Proceeds from divestment of investment in a company
G
(Example, case of Sistema Shyam in Hexacom)
11. The demand for License fee in a circle where the
Licensee is not granted spectrum (in the case of
Videocon & S. Tel)
H 12. Interest, Penalty, and Interest on Penalty
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 719
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

13. Non-refundable deposits and notional interest on interest- A
free loans.”
24. TDSAT in the impugned order has held that the Gain on sale
of Capital assets and receipt from the sale of scrap cannot be included
in gross revenue for computation of licence fee. However, it is required
to be noted that the said issue was raised earlier and considered by B
the TDSAT in its earlier order dated 30.08.2007 and held in favour of
the telecom operators. However, this Court, in the case of AUSPI
(supra) – expressly set aside the order passed by the TDSAT.
Therefore, subsequently it was not open for the TDSAT to again hold
contrary by the impugned order on the head as mentioned earlier and
C
it can be said to be barred by res judicata because of the specific
order of AUSPI (supra).
25. Various questions arise for consideration as under:
(i) In re: Definition of gross revenue.
(ii) In re: Discount and commissions. D

(iii) In re: Gains arising out of foreign exchange fluctuations.
(iv) In re: Monetary gains on sale of shares.
(v) In re: Insurance claim in respect of capital assets.
E
(vi) In re: Amount of negative balance of pre-paid customer.
(vii) In re: Reimbursement of the infrastructure operating
expenses.
(viii) In re: Waiver of late fee.
(ix) In re: Gains from roaming charges & PSTN pass- F
through charges.
(x) In re: Non-refundable deposits.
(xi) In re: Licence fee demand where spectrum is not
granted. G
(xii) In re: Income from interest & dividend.
(xiii) In re: Bad-debts written off.
(xiv) In re: Liability written off.
(xv) In re: Inter-corporate loan. H
720 SUPREME COURT REPORTS [2019] 16 S.C.R.

A (xvi) In re: Revenue under IP-1 Registration.
(xvii) In re: Income from management consultancy services.
(xviii) In re: Res Judicata.
(xix) In re: Levy of interest, penalty and interest on penalty.
B In Re: Definition of Gross Revenue
26. A new package, namely “the National Telecom Policy 1999
Regime,” gave an option to the licensees to migrate from fixed licence
fee to revenue sharing fee, which was to the advantage of Telecom
Service Providers (for short, ‘the TSPs’). The objective of the
C Government was to achieve social and economic goals to provide the
service to all uncovered area including rural areas, remote, hilly and
tribal areas and to create an efficient infrastructure thereby propelling
India into an IT superpower and to increase teledensity from 0.4 to 4
by the year 2010 and to provide internet access to all district
D Headquarters by the year 2000. Human resource development training,
telecom equipment manufacturer, and remote area telephony were the
other objectives.
27. The Central Government has given a liberalised mode of
payment by revenue sharing regime, which was the price parting with
E the exclusive privilege which the Central Government had. The
intendment was to make the Government partner or sharer of gross
revenue. Out of the existing gross revenue, the Central Government
decided to spend money on remote and uncovered areas, rural, tribal,
and hilly areas. The Government incurred a colossal amount of
Rs.49.120 crores under the Universal Service Obligation Fund (for short,
F
‘the USOF’) and incurred a committed liability of Rs.59,774 crores for
ongoing projects including laying of optical fiber cables up to Gram
Panchayat areas under “Digital India Mission.” Initially, 15 percent
Adjusted Gross Revenue (for short, ‘the AGR’) was fixed as license
fee under revenue sharing, which was reduced to 13 percent and lastly
G to 8 percent in 2013. Out of the 8 per cent, a substantial portion of 5
per cent is spent by the Central Government under the USOF.
28. The Sector is benefited immensely under the Scheme as
apparent from the gross revenue trend from 2004 to 2015. Clause 19.1
defines gross revenue. It came as relief against the high license fee.
H The gross revenue for this purpose would be the total revenue of the
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 721
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

licensee company with certain exceptions provided in Clause 19.2 to A
arrive at the figure of AGR. The Policy of 1999 contained the stipulation
that the conditions are to be accepted in its entirety, and no dispute
concerning the license agreement shall be raised at any future date.
The acceptance of the package be deemed full and final settlement,
and after that amendment to the license agreement has to be signed.
B
Following stipulations were mentioned explicitly in the Migration
Package:
“2. Migration to the NTP-99 on the conditions mentioned above
will be permitted on the premise that the aforesaid conditions are
accepted as a package in its entirety and simultaneously all legal
proceedings in Courts, tribunals or in Arbitration instituted by the C
license and Associations of Cellular and Basic Service Operators
(COAI) & ABTO) against DoT or UOI shall be withdrawn.
Further, any dispute with regard to the license agreement for the
period up to 31.07.1999 shall not be raised at any future date.
The acceptance of the package will be deemed as full and final D
settlement of all existing disputes whatsoever irrespective of
whether they are related with the present package or not.
3. After the terms and conditions of the package are accepted,
amendments to the existing license agreement will be signed
between the licensor and the licensee.” E
29. To avoid the accounting jugglery, the Department of
Telecommunications (for short, ‘the DoT’) sought the advice of experts
in the field of accountancy to decide upon the broad definition of the
gross revenue. The relevant portion of the experts’ opinion is extracted
hereunder: F
“1.1 The question of what should constitute ‘revenue’ in the
context of the ‘revenue sharing’ policy of the
government is a vexed one. Accounting principles seek
to measure economic transactions and events in a
dynamic and open environment and, therefore, do not G
always provide as definitive guidance as one would
wish. While keeping these inherent limitations of
accounting as a measurement discipline in view, an
attempt has been made in this note to articulate a basic
set of propositions that may assist in dealing with the
issue on hand. Needless to add, these propositions are H
722 SUPREME COURT REPORTS [2019] 16 S.C.R.

A presented only as a starting point for discussions and
further refinement.
1.2 As far as possible, our definition of ‘revenue’, the
principles for its measurement and the procedure for
establishing the authenticity of actual figures should
B be simple and objective. While it is recognised that
this is a difficult proposition given the inherent nature
of accounting and the diversity in the telecom scenario
(which it is recognised that this is a difficult proposition
given the inherent nature of accounting and the diversity
C in the telecom scenario (which is likely to grow at a fast
pace), our attempt should be to evolve a system
of revenue sharing that does not become as
arduous and litigative as some other revenue-
generating activities of the government, e.g.,
income tax, excise duty etc.
D
1.3 Defining ‘revenue in a broad, comprehensive and
inclusive manner is likely to pose fewer problems
of interpretation (and consequently lesser
disputes and litigation) than would be the case
otherwise. Further, exclusion of certain items from
E the definition of ‘revenue’ may sometimes
encourage companies to design their tariff and
payment schemes in such a manner that their
license fee liability is reduced to the minimum. Of
course, the comprehensiveness of definition of revenue
F would need to be duly considered in determining the
percentage of revenue to be charged as license fee, so
that the amount of license fee is appropriate in the
context of the present stage of evolution of telecom
companies.
G 1.4 To ensure consistency, we may lay down uniform
accounting policies to be followed by telecom
companies for presenting their annual accounts as well
as periodical statements of revenue to be sent to the
government supporting their payments.”
H (emphasis supplied)
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 723
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

30. The definition of revenue has been taken in a broad, A
comprehensive, and inclusive manner to pose fewer problems of
interpretation, and exclusion of certain items was avoided.
31. On 21.5.2001, the Government of India finalised the concept
of gross revenue and AGR.
32. The format of the statement of revenue and license fee B
payable by the TSPs is appended to the license agreement, which
reflected the various heads and components, including any other income/
miscellaneous receipts from the wireline subscribers, which was to be
included for the computation of AGR. Provision in Clause 20.2 was
made for payment of license fee by the licensee on the basis of actual C
revenue (on accrual basis). The accrual was necessary irrespective of
its realisation at a subsequent date or even its non-realisation.
33. Shri Tushar Mehta, learned Solicitor General of India,
appearing on behalf of Union of India submitted that the definition of
gross revenue has to prevail over the mode of accounting. Under Clause D
20.4 of the agreement, the licensee must state in the prescribed form
as Annexure-II. The format is a part of the license under the title of
“Format of Statement of Revenue and Licensee Fee.” It has no
connection with the accounting standards prescribed under the
Companies Act. The format is the basis for the calculation of the license
fee in revenue sharing. The licensees provide the details as per the E
format Annexure-II along with the certificate of Auditors. The TSP has
to provide all the details of gross revenue as per the definition. The
accounting standards deal with the broad principles to be followed while
maintaining accounts and can never override the definition of gross
revenue. Accounting Standard (AS-9) deals with the definition of F
revenue, but that cannot prevail over the definition of Gross Revenue
as defined in the agreement. The provisions of Section 211 (3B) of
Companies Act makes it clear that accounting standards are not
sacrosanct.
34. The profit and loss account and balance-sheet have to comply G
with the accounting standards, as provided in Section 211(3A). In case
they do not comply, for any deviation, the reasons, and the economic
effect have to be disclosed. In Petition No.7 of 2003 filed by AUSPI,
the declaration was sought that AGRs can only be related to revenues
directly arising out of the telecom operations licenced under Section 4
of the Indian Telegraph Act, 1885. A prayer was made to set aside H
724 SUPREME COURT REPORTS [2019] 16 S.C.R.

A the demand letter issued in 2002 and 2003, claiming revenue share on
interest income and other miscellaneous heads. In Petition No.82 of
2005, a prayer was made to re-compute and modify the demands as
per demand notes dated 28.3.2003 and 13.7.2004 on account of the
wrongful entry of gross revenue and AGR, the DoT cannot levy license
fee, which result in charge of the license fee twice on the same revenue
B
in the hands of two or more operators/circles. DoT be directed to
calculate AGR on realisation basis, not on an accrual basis, and not to
include notional revenue income in AGR.
35. Prayer was made to direct DoT to modify the definition of
C gross revenue and AGR for license fee as also WPC charges under
Section 4 of the Indian Telegraph Act, 1885. Prayers were also made
to direct DoT to modify the Format of Statement of Gross Revenue,
Adjusted Gross Revenue, and License Fee and strike down the definition
of gross revenue and AGR. This Court in Union of India v. AUSPI
(2011) held that Tribunal has no jurisdiction to exclude certain items of
D revenue, which were included in the definition of AGR. The licensee
could not have approached the Tribunal for the alteration of the definition
of AGR in the license agreement. TRAI and Tribunal had no jurisdiction
to decide on the validity of the definition AGR in the licence agreement.
The licensees are not only precluded to challenge the definition of gross
E revenue/AGR, but also by the meaning the Government may choose
to put to the definition. The Tribunal has travelled beyond its jurisdiction
to act contrary to the specific findings and decision in AUSPI v. Union
of India.
36. Shri Arvind Datar, Shri C.A. Sundaram, Shri Shyam Divan,
F Shri Gopal Jain, Shri Ramji Srinivasan, Dr. Abhishek Manu Singhvi, Shri
Kavin Gulati, Shri B. Adinaraynan Rao, Shri U. Hazarika, Shri Chetan
Sharma and Shri Siddhartha Dave, learned senior counsel appearing
on behalf of TSPs submitted that the meaning of gross revenue has to
be determined in accordance with the provisions of AS-9 which only
includes gross inflow of cash, receivables that arise out of ordinary
G
activities of the telecom companies. In the definition of gross revenue,
only revenue cash inflow as revenue can be included; not all the
incomes which is recorded in profit and loss account and non-revenue
items cannot be included in the definition of gross revenue within the
ambit of accounting standards. Clause 18.2 of the license agreement
H provides only license fee of 10 per cent of AGR excluding the spectrum
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 725
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

charges. The gross revenue under Clause 19.1 is not gross income or A
gross inflow or gross receipts.
37. It is further submitted on behalf of the licensees that revenue
has not been defined under the license. Clauses 20.6 and 22 of the
license agreement provided as to how the licensees are obliged to
prepare their accounts. Section 211(3A) read with Section 211(3C) of B
the Companies Act, 1956, casts an obligation on companies to maintain
their books of account following accounting standards recommended
by the Institute of Chartered Accountants of India constituted under
the Chartered Accountants Act.
38. They have insisted to adopt fair valuation method relying on C
decision in J.K. Industries Limited v. Union of India, (2007) 13 SCC
673.
39. It is further submitted that accounting standards have been
made mandatory. The DoT has admitted in their counter affidavit dated
11.7.2003 in Petition No.7 of 2003 that definition of term revenue is in
D
line with AS-9. The Government cannot resile from the stand that
revenue definition is in line with AS-9 and cannot take a contradictory
stand at different stages of the case. The party cannot be permitted
to approbate and reprobate on the same aspect.
40. It is submitted on behalf of licensees. that in order to compute
the adjusted gross revenue would constitute (a) it must be revenue; (b) E
it is gross and not net revenue; and (c) it would be adjusted revenue,
but adjustment can be made only by deductions as provided under Clause
19.2. Revenue has to be interpreted in keeping with commercial and
financial parlance. The contract itself recognise the applicability of the
accounting standards as apparent from Clauses 20.6 and 22.7. The F
accounts have to be maintained as per the accounting standards. The
purpose of accounting standards is to ensure that there is clarity,
uniformity in dealing with the financial terms to give definitiveness and
clarity to such financial expressions. Accounting standards are
mandatory. Revenue had not been defined in the commercial license
agreement and this being a commercial contract and the accounting G
standards having been incorporated by reference in the license
agreement as such the basis on which the license fee has to be decided,
the same would prevail.
41.It is further submitted that all receipts would not form part of
AGR. The use of the word inclusive under Clause 19.2 does not make H
726 SUPREME COURT REPORTS [2019] 16 S.C.R.

A the definition of AGR expansive though the definition is not exhaustive
as the provision of value-added services is different and provided in
other clauses and service is to mean service in a licensed service area.
Thus, license fee has to be confined in respect of business carried on
to provide the services under the license. A single company may hold
five licenses for five different service areas. The license fee at 10
B
percent cannot be levied on the same revenue cannot be charged to
license fee more than once, as apparent from Clause 20.4 of the license
read with Appendix-II to Annexure-II to it, which is the prescribed
format by the licensor indicating the streams of revenue required by a
licensee to be disclosed. The miscellaneous receipts provided under each
C head are not meant to include any and every receipt received by the
company.
42.It should be held that such revenue from non-licensed revenue
was not part of AGR at all. Contra proferentum rule requires clauses
19.1 and 19.2 to be interpreted against the maker and to prefer the
D interpretation which is favourable to the licensees.
43.The service providers submitted that basic principles to decide
what constitutes revenue have to be followed. The receipt must be
having the nature of revenue, and it cannot be subjected to double
charge. No one can generate revenue from oneself, and someone else’s
E revenue cannot be treated as that of others.
44.When we consider the submissions as observed 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
F Government shared the privilege under section 4 of the Indian Telegraph
Act 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
G
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
H mentioned in clause 19.1 and any other miscellaneous revenue, without
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 727
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

any set-off for related items of expense, etc. All the licensees accepted A
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
B
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.
45. No doubt about it that the accounts have to be maintained
C
as per the AS-9 regime prevalent at the relevant time. The definition
of the contract has to prevail and not what is generally revenue, as
defined in AS-9.
46. The question as to what constitute Gross Revenue has been
agitated, though concluded in earlier decision in 2011, by the TSPs. again
D
by raising the submission that we have to follow the definition of revenue
as defined in AS-9, it would be the revenue as generated by activities
under the licence; whereas the definition of gross revenue includes the
income from non-licensing activities also as part of the gross revenue,
which we have to discard.
E
47. The definition of ‘gross revenue’ in clause 19.1 is inclusive,
and it includes explicitly:
(i) installation charges;
(ii) Late fees;
(iii) sale proceeds of handsets; F

(iv) sale proceeds of any other terminal equipment, etc.
(v) revenue on account of interest;
(vi) revenue on account of dividend;
G
(vii) value-added services;
(viii) supplementary service as fixed charges;
(ix) access or interconnection charges;
(x) roaming charges; H
728 SUPREME COURT REPORTS [2019] 16 S.C.R.

A (xi) revenue from permissible sharing of infrastructure; and
(xii) any other miscellaneous revenue.
48. No set-off can be claimed for related items of expense etc.
on any of the items mentioned above of the inclusive definition and on
B the miscellaneous revenue.
49. Clause 19.2 of the agreement excludes certain items from
gross revenue to arrive at the figure of AGR, which are (a) PSTN/
PLMN related charges (access charges) actually paid to other eligible
service providers within India; (b) roaming revenue passed on to the
C TSPs through service tax paid to the Government, if gross revenue had
included the component of service tax and sales tax.
50. In Union of India v. AUSPI (2011), this Court has held that
the terms and conditions of the licence, including the definition of gross
revenue in the licence agreement, are part of the contract. The Central
D Government alone has the right to define revenue and has parted with
the privilege under section 4 of the Telegraph Act. A licence granted
under section 4(1) of the Telegraph Act is in the nature of the contract
between the Central Government and the licensee. The provisions of
the TRAI Act do not affect the specific exclusive privilege of the
E Central Government to carry on telecommunication activities, nor do
they alter the contractual nature for the licence granted under the
proviso to section 4(1) of the Telegraph Act. After TRAI makes the
recommendation, the Central Government shall take a final decision
under section 11(1)(a)(ii) of the TRAI Act. The TRAI shall have the
F function to make a recommendation. In case of difference between
TRAI and Central Government with regard to particular terms or
conditions of the licence, the recommendation of TRAI cannot prevail,
and it is the decision of the Central Government, which is to be final
and binding. The tribunal has no jurisdiction to decide upon the validity
of terms and conditions incorporated in a licence; it has jurisdiction to
G
decide any dispute between the licensor and the licensee on the
interpretation. It has also been observed to make a final decision on
the definition of the gross revenue in the licence agreement, the
Government has the competence. The licence fee would be a
percentage of gross revenue, which would be the total revenue of the
H licensee company.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 729
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

51. This Court has held in Union of India v. AUSPI (2011) that A
the licensing company had accepted in the letter dated 22.7.1999 that
the licence fee would be a percentage of the gross revenue, which
should be the total revenue of the licensee company. The licensee
agreed that the Government has to take a final decision not only
concerning the percentage of revenue share but also the definition of B
revenue for this purpose. The licensee could not have approached the
tribunal to question the validity of the definition of adjusted gross revenue
in the licence agreement on the ground that the adjusted gross revenue
cannot include revenue from activities beyond the licence.
52. It is submitted on behalf of the licensees that the term C
revenue has nowhere been defined under the licence. As such, it would
be necessary to find out what is the meaning of revenue in AS-9. The
submission that revenue has to be related to the activities of the licensee
company, a reference has been made to the definition of revenue as
given in clause 4.1 of AS-9, which reads as under:
D
“4.1 Revenue is the gross inflow of cash, receivables, or other
consideration arising in the course of the ordinary activities of
an enterprise from the sale of goods, from the rendering of
services, and from the use by others of enterprise resources
yielding interest, royalties, and dividends. Revenue is measured
E
by the charges made to customers or clients for goods supplied
and services rendered to them and by the charges and rewards
arising from the use of resources by them. In an agency
relationship, the revenue is the amount of commission and not
the gross inflow of cash, receivables, or other consideration.”
F
53. The explanation contained in clause 5 of AS-9 relating to
revenue recognition is extracted hereunder:
“Explanation
Revenue recognition is mainly concerned with the timing of
recognition of revenue in the statement of profit and loss of an G
enterprise. The amount of revenue arising on a transaction is
usually determined by agreement between the parties involved
in the transaction. When uncertainties exist regarding the
determination of the amount or its associated costs, these
uncertainties may influence the timing of revenue,” H
730 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 54. Clauses 20.6, 20.7, and 22 of the licence agreement have
also been referred. They are extracted hereunder:
“20.6 Final adjustment of the Licence Fee for the year shall be
made based on the gross revenue figures duly certified by the
AUDITORS of the LICENSEE in accordance with the provision
B of Companies Act, 1956.
20.7 A reconciliation between the figures appearing in the
quarterly statements submitted in terms of the clause 20.4 of the
agreement with those appearing in annual accounts shall be
submitted along with a copy of the published annual accounts
C audit report and duly audited quarterly statements, within 7
(seven) Calendar days of the date of signing of the audit report.
The annual financial account and the statement as prescribed
above shall be prepared following the norms as prescribed in
Annexure.
D xxx
22. Preparation of Accounts.
22.1 The LICENSEE will draw, keep and furnish independent
accounts for the SERVICE and shall fully comply orders,
directions, or regulations as may be issued from time to time, by
E the LICENSOR or TRAI as the case may be.
22.2 The LICENSEE shall be obliged to:
a) Compile and maintain accounting records, sufficient to
show and explain its transactions in respect of each
completed quarter of the Licence period or of such
F
lesser periods as the LICENSOR may specify, fairly
presenting the costs (including capital costs), revenue
and financial position of the LICENSEE’s business under
the LICENCE including a reasonable assessment of the
assets employed in and the liabilities attributable to the
G LICENSEE’S business, as well as, for the quantification
of Revenue or any other purpose.
b) Procure in respect of each of those accounting
statements prepared in respect of a completed financial
year, a report by the LICENSEE’s Auditor in the format
H prescribed by the LICENSOR stating inter alia whether
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 731
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

in his opinion the statement is adequate for the purpose A
of this condition and thereafter deliver to the
LICENSOR a copy of each of the accounting
statements not later than three months at the end of the
accounting period to which they relate.
c) Send to the LICENSOR a certified statement on an B
affidavit by authorised representative of the company,
containing full account of Revenue as defined in
condition 19 for each quarter separately along with the
payment for the quarter.
22.3 (a) The LICENSOR or the TRAI, as the case may be, shall C
have a right to call for and the LICENSEE shall be
obliged to supply and provide for examination any books
of accounts that the LICENSEE may maintain in respect
of the business carried on to provide the service(s)
under the Licence at any time without recording any
D
reasons thereof.
22.3 (b) LICENSEE shall invariably preserve all billing and all
other accounting records (electronic as well as hard
copy for a period of THREE years from the date of
publishing of duly audited & approved Accounts of the
E
company and any dereliction thereof shall be treated as
a material breach independent of any other breach,
sufficient to give a cause for cancellation of the
LICENCE.
22.4 The records of the LICENSEE will be subject to such
F
scrutiny as may be prescribed by the LICENSOR so as to
facilitate independent verification of the amount due to the
LICENSOR as its share of the revenue.
22.5 The LICENSOR may, on forming an opinion that the
statements or accounts submitted are inaccurate or misleading,
G
order Audit of the accounts of the LICENSEE by appointing
auditor at the cost of the LICENSEE and such auditor(s) shall
have the same powers which the statutory auditors of the
company enjoy under Section 227 of the Companies Act, 1956.
The remuneration of the Auditors, as fixed by the LICENSOR,
shall be borne by the LICENSEE. H
732 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 22.6 The LICENSOR may also get conducted a Special Audit
of the LICENSEE company’s accounts/records by “Special
Auditors,” the payment for which at a rate as fixed by the
LICENSOR shall be borne by the LICENSEE. This will be in
the nature of auditing the audit described in para 22.5 above. The
Special Auditors shall also be provided the same facility and have
B
the same powers as of the companies’ auditors as envisaged in
the Companies Act, 1956.
22.7 The LICENSEE shall be liable to prepare and furnish the
company’s annual financial accounts, according to the accounting
principles prescribed and the directions given by the LICENSOR
C or the TRAI, as the case may be, from time to time.”
55. The clauses mentioned above provided as to how the
licensees are obliged to prepare the accounts. There is a statutory
obligation cast under the Companies Act. Section 211(3A) read with
section 211(3C) of the Companies Act provides to maintain their books
D of accounts following the accounting standards and for which reliance
has been placed upon J & K Industries v. Union of India (supra) in
which the Court has emphasised upon the fair valuation principles. They
have relied upon the following observations:
“124. On the other hand, fair valuation principles are important
E in the context of valuing derivatives and other investments. If
one were to describe one single change in accounting practice
over the last few years, it would be the use of fair valuation
principles. Today, the object behind the enactment of AS, which
are now made mandatory under Section 211(3-A) of the
F Companies Act, is to shift from historical method of accounting
to fair valuation. In the case of mergers and acquisitions, which
is common today in the world of globalisation, fair valuation
principles have important role to play. Mergers and acquisitions
are sometimes undertaken to defer revenue expenditure over
future years by invoking the matching concept, which results
G in putting fictitious assets on the balance sheet. This is one
reason why fair valuation principles are accepted.
125. AS are established rules relating to recognition,
measurement, and disclosures, thereby ensuring that all
enterprises that follow them are comparable and that their
H financial statements are “true and fair.” Measurements and
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 733
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

disclosures based on fair value are becoming increasingly A
important. Fair valuation is generally used in valuation and
disclosure of financial instruments, derivatives, conversions,
auctions in a bond, business combinations, impairment of assets,
retirement obligations, transactions involving exchange of assets
without monetary consideration, transfer pricing, etc.”
B
56. The accounting standards are mandatory to be followed by
the companies, and DOT has admitted in the counter affidavit of
11.7.2003 in Petition 7 of 2003 that the definition of the term revenue
in the agreement is in line with AS-9 under the accounting standards.
Thus, they cannot approbate and reprobate. Thus, identification of
revenue would come within the purview of gross revenue, is the sole C
test that it should conform with the definition of revenue as provided in
AS-9, and the golden thread is the phrase arising in the course of the
ordinary activities of the enterprise.
57. Revenue is a ‘Term of Art’ as per Chapter 4.08 Kim
Lewison, the Interpretation of Contract, Sweet & Maxwell, 1997, D
wherein it has been observed as under:
“Where a document contains a legal term of art, the court should
give it its technical meaning in law, unless there is something in
the context to displace the presumption that it was intended to
carry its technical meaning.” E

(emphasis added)
58. The Technical meaning as to the gross expression revenue
does not mean inflows that are not revenue and other miscellaneous
revenue cannot have a broader meaning. It must qualify as revenue. F
It is not miscellaneous inflow and miscellaneous receipts. The items
of the revenue must be interpreted as per the doctrine of ejusdem
generis, as observed in Maharashtra University of Health Sciences
v. Satchikitsa Prasarak Mandla, (2010) 3 SCC 786. Following
observations have been made:
G
“27. The Latin expression “ejusdem generis” which means “of
the same kind or nature” is a principle of construction, meaning
thereby when general words in a statutory text are flanked by
restricted words, the meaning of the general words are taken to
be restricted by implication with the meaning of the restricted
words. This is a principle which arises “from the linguistic H
734 SUPREME COURT REPORTS [2019] 16 S.C.R.

A implication by which words having literally a wide meaning (when
taken in isolation) are treated as reduced in scope by the verbal
context.” It may be regarded as an instance of ellipsis, or reliance
on implication. This principle is presumed to apply unless there
is some contrary indication [see Glanville Williams, The Origins
and Logical Implications of the Ejusdem Generis Rule, 7 Conv
B
(NS) 119].”
59. Thus, as per licensees the miscellaneous revenue has to be
revenue as defined in AS-9. The miscellaneous revenue only serves
the purpose of capturing such other revenue that satisfies common
characteristics of the preceding word.
C
60. As per licensees, the revenue pertained only to the licensed
activities and was specific to activities under the licensing agreement
in the designated area on the services rendered to the customers. The
rule of interpretation of a commercial contract is that when the provision
is not exclusively defined, it is to look at how the parties would
D
understand the same by their subsequent conduct as observed in
Godhra Electricity Co. Ltd. v. State of Gujarat, (1975) 1 SCC 199
thus:
“11. In the process of interpretation of the terms of a contract,
the court can frequently get great assistance from the interpreting
E
statements made by the parties themselves or from their conduct
in rendering or in receiving performances under it. Parties can,
by mutual agreement, make their own contracts; they can also
by mutual agreement remake them. The process of practical
interpretation and application, however, is not regarded by the
F parties as a remaking of the contract; nor do the courts so regard
it. Instead, it is merely a further expression by the parties of the
meaning that they give and have given to the terms of their
contract previously made. There is no good reason why the courts
should not give great weight to these further expressions by the
parties, in view of the fact that they still have the same freedom
G
of contract that they had originally. The American Courts receive
subsequent actings as admissible guides in interpretation. It is true
that one party cannot build up his case by making an
interpretation in his own favour. It is the concurrence therein that
such a party can use against the other party. This concurrence
H may be evidence by the other party’s express assent thereto, by
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 735
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

his acting in accordance with it, by his receipt without objection A
of performances that indicate it, or by saying nothing when he
knows that the first party is acting on reliance upon the
interpretation (see Corbin on Contracts, Vol. 3, pp.249 & 254-
56).
12. The rule that obtains in other jurisdictions is also the same: B
“In France construction of a contract is within the sole province
of the judges of fact who are entirely free to use whatever
material seems relevant to them... The rule is the same in
Germany, where since 1888, it is established that even statements
made by one of the contracting parties to a third person about C
the content of the contractual intentions are admissible guides to
interpretation... In Italy, Article 1362(2) provides in impressively
succinct language... The Vienna Convention on the law of
Treaties of 1969 (which to a large extent merely codifies earlier
international practice) enjoins the interpreter of a treaty to take
into account ‘any subsequent practice in the application of the D
treaty which establishes the agreement of the parties regarding
its interpretation’: Article 31(3)(b) [see Notes by P.A. Mann on
L. Schuler A.G. v. Wickman Machine Tool Sales Ltd., (1973)
2 WLR 683, Law Quarterly Review, Vol. 89, pp. 464-65].
The real reason against taking into account the subsequent E
conduct of the parties is the rule which excluded extrinsic
evidence in the construction of a written contract.
16. We are not certain that if evidence of subsequent acting under
a document is admissible, it might have the result that a contract
would mean one thing on the day it is signed, but by reason of F
subsequent event, it would mean something a month or year later.
Subsequent “interpreting” statements might not always change
the meaning of a word or a phrase. A word or a phrase is not
always crystal clear. When both parties subsequently say that
by the word or phrase which, in the context, is ambiguous, they G
meant this, it only supplies a glossary as to the meaning of the
word or phrase. After all, the inquiry is as to what the intention
of the parties was from the language used. And, why is it that
parties cannot clear the latent ambiguity in the language by a
subsequent interpreting statement? If the meaning of the word
or phrase or sentence is clear, extrinsic evidence is not H
736 SUPREME COURT REPORTS [2019] 16 S.C.R.

A admissible. It is only when there is latent ambiguity that extrinsic
evidence in the shape of interpreting statement in which both
parties have concurred should be admissible. The parties
themselves might not have been clear as to the meaning of the
word or phrase when they entered into the contract.
Unanticipated situation might arise or come into the contemplation
B
of the parties subsequently which would sharpen their focus and
any statement by them which would illuminate the darkness
arising out of the ambiguity of the language should not be shut
out. In the case of an ambiguous instrument, there is no reason
why subsequent interpreting statement should be inadmissible.
C
“The question involved is this: Is the fact that the parties to a
document, and particularly to a contract, have interpreted its
terms in a particular way and have been in the habit of acting
on the document in accordance with that interpretation, any
admissible guide to the construction of the document? In the
D case of an unambiguous document, the answer is ‘No.’ (See
Odgers’ Construction of Deeds and Statutes, 5th Edn. by
G. Dworkin, pp. 118-19).”
But, as we said, in the case of an ambiguous one, the answer
must be “yes.” In Lamb v. Goring Brick Co., a selling agency
E contract contained the words “the price shall be mutually agreed.”
Documents showing the mode adopted for ascertaining the price
were put in evidence without objection. In the court of appeal
Greer, L.J. said:
“In my opinion, it is not necessary to consider how this contract
F was acted on in practice. If there had been an ambiguity, and
the intention of the parties had been in question at the trial, I
think it might have been held that the parties had placed their
own construction on the contract and, having acted upon a
certain view, had thereby agreed to accept it as the true view
of its meaning.””
G
(emphasis supplied)
61. The submission raised for adopting fair valuation method
relying on S.K. Synthetics (supra) is based upon misconception of
method applicable to A.S-9. The argument is crafted to get rid of AS-
H 9 and the definition of gross revenue in the agreement. We have to
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 737
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

consider valuation method of accounting standards which are laid time A
to time to find an answer to the submission. 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-
B
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 C
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
D
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 (supra) cannot be accepted as the decision is on consideration E
of different accounting standard which adopts fair valuation method i.e.,
Ind AS-18 and not relevant for the AS-9 accounting standard.
62. 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 F
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, G
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. H
738 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 63. Even otherwise, on merit, the submission raised is baseless.
The contractual definition of gross revenue is binding. This Court has
observed that it was open for the licensee not to undertake activities
for which they do not require licence under section 4 of the Telegraph
Act and transfer these activities to any other firm or company. However,
they cannot avoid the consequences of the contractual definition which
B
has been accepted by the parties, and they are bound to make payment
of licence fee on the basis of gross revenue, which would be the total
revenue of the licensing company. As the Government has not accepted
the TRAI’s recommendations, the decision of the Central Government
on the point of definition of adjusted gross revenue was final and
C binding. This Court has also held that TRAI and tribunal had no
jurisdiction to decide on the validity of the definition of adjusted gross
revenue under the licence agreement and to exclude certain items of
revenue which were included in the definition of gross revenue in the
licence agreement between the licensor and licensee. The tribunal had
no jurisdiction to exclude certain items on the ground of the validity of
D
the definition of adjusted gross revenue. The finding of the tribunal in
the order dated 7.7.2006 insofar as it decided that the revenue realised
by the licensee from activities beyond the licence to be excluded from
adjusted gross revenue in the licence agreement is without jurisdiction
and is a nullity. The matter was sent back to TDSAT for computation
E of adjusted gross revenue. It was also observed if a dispute is raised
that computation is not following licence agreement, the tribunal has to
go into facts and material on which demand is raised and to decide
demand is following the licence agreement and in particular, the definition
of adjusted gross revenue. It can also interpret the terms and conditions
of the licence agreement. The tribunal did not go into the facts and
F
material relating to the demand as to the particular licence. The tribunal
can go into the question of whether the demand is under the licence
agreement and in particular, the definition of adjusted gross revenue.
64. Under clause 20.6, certification of accounts by auditors
appointed under the Companies Act is stipulated under the licence. The
G preparation of accounts under clause 22 of the licence agreement is
an independent head. The definition of gross revenue given under the
agreement in Clause 19.1 and that is the total revenue. In our considered
opinion, when there is a contractual definition as to what would be the
gross revenue that would be the revenue and also the total revenue,
H the revenue as mentioned in the mode of accounting AS-9 cannot
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 739
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

govern the definition. The general definition of revenue in the mode A
of accounting cannot govern the contractual definition of gross revenue.
65. As per clause 20.4, a licensee must make quarterly payment
in the prescribed format as Annexure-II showing the computation of
revenue and licence fee payable. The Format is part of the licence and
is independent of accounting standards and is in tune with the definition B
of gross revenue, and is the basis for the calculation of licence fee. It
is only for uniformity that the account has to be maintained as per
accounting standards AS-9 which are prescribed from time to time.
Once the licensee provides the details to the Government in format
Annexure-II along with accounts certified by the auditor, the C
reconciliation has to take place. The accounting standard AS-9 is
relevant only for whether the figure given by the licensee as to gross
revenue is maintained in proper manner once gross revenue is
ascertained, then after certain deductions, adjusted gross revenue has
to be worked out. The accounting standard provided in AS-9 cannot
override the definition of gross revenue, which is the total revenue for D
licence and the finding in Union of India v. AUSPI (2011) in this regard
is final, binding, and operative. 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 E
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.
66. Though the definition of revenue given in clause 4.1 of AS-
9 cannot govern the contract, the contractual definition of gross revenue F
which is the gross revenue under Clause 19.1 and total revenue for
the purpose of the agreement for which an independent definition has
been carved out under the statutory power while parting with the
privilege under section 4 by the Central Government, once the contract
has been entered into, the definition of gross revenue is binding, and
the licensees cannot try to wriggle out of the decision by making G
impermissible attempts to depart from it. The plea is barred by res
judicata, and on merits the objection is wholly untenable. The definition
of revenue in clause 4.1 of AS-9 provides that the revenue is the gross
inflow of cash, receivables, or other consideration arising in the course
of the ordinary activities. When the revenue in AS-9 is the gross inflow H
740 SUPREME COURT REPORTS [2019] 16 S.C.R.

A of cash and the amount which is receivable, not the amount received,
which is realised or other consideration arising, can also be taken into
consideration as per accounting standard AS-9. The definition of revenue
in AS-9 rather than supporting the cause of the licensees defeats the
same. They cannot bank upon the expression in clause 4.1 in the course
of ordinary activities of an enterprise is only to be included in gross
B
revenue as that is what has been expressly negated in Union of India
v. AUSPI (2011). Given the definition of gross revenue, the same
includes revenue from activities beyond the licence. Explanation to
clause 5 of AS-9 also makes it clear that the agreement between the
parties would determine the amount of revenue arising on a transaction.
C 67. 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. Sections
211(3A) and 211(3B) are quoted hereunder:
D “211 (3A) Every profit and loss account and balance-sheet of
the company shall comply with the accounting standards.
(3B) Whether the profit and loss account and the balance-sheet
of the company do not comply with the accounting standards,
such companies shall disclose in its profit and loss account and
E balance-sheet, the following, namely:-
(a) the deviation from the accounting standards;
(a) the reasons for such deviation; and
(b) the financial effect, if any, arising due to such deviation.”
F 68. Thus, it is apparent that accounting standard AS-9 is a method
to maintain accounts and, deviation if made, has to be reflected
separately.
69. Prayer made in Petition No.7/2003 filed by AUSPI v. Union
of India was to declare that ‘gross revenue’ can only relate to revenue
G directly arising out of telecom operations licensed under section 4 of
the Indian Telegraph Act, and items indicated in the DOT letter dated
26.7.2001 including interest income and the dividend income, value of
rebates, discounts, free calls and reimbursement from the USO fund,
etc. ought not to be excluded in the adjusted gross revenues. It was
also prayed that revenue share on interest income and other incomes
H be set aside.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 741
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

70. In Petition No.82/2005, demand was dated 28.3.2003 and A
13.7.2004, etc. and refund on account of wrongful application and
implementation of gross revenue and adjusted gross revenue was sought
along with interest. Prayer was made that licence fee or WPC charges
on any non-telecom revenue, i.e., the revenues which are not derived
from the licensed activities under the licence/revenues which do not
B
relate to or do not have a direct nexus to the establishment, maintenance
and working of Telegraph, cannot be levied. DOT cannot collect what
is not revenue. Prayer was also made to direct DOT to calculate
adjusted gross revenue on a realisation basis and not accrual basis, and
not to include any notional revenue/income in the adjusted gross revenue.
Prayer was made to direct DOT to modify the definitions of gross C
revenue and also adjusted gross revenue, bring them in conformity with
the migration package. Prayer was also made to suitably modify the
format of statement of gross revenue, adjusted gross revenue and
licence fee in accordance with the correct definitions, and to strike
down the definitions of gross revenue, and adjusted gross revenue D
contained in DOT’s licence amendment dated 11.4.2001 as being unfair,
unjust, unreasonable and arbitrary.
71. Thus, it is apparent that right from the beginning, the licensees
were aware of the precise terms and conditions and their obligations
as contained in the letter dated 26.7.2001and purport of the definitions E
of gross revenue and adjusted gross revenue. Notional revenue has to
be charged. The order of TDSAT excluding certain items of revenue,
which were included in the definition of AGR by declaring the definition
of gross revenue to be invalid, was set aside by this Court in Union of
India v. AUSPI (supra) and this Court held that items are to be included
in definition of gross revenue. F
72. The rule of interpretation of contra proferentum has also
been pressed into service. As observed in United India Insurance Co.
Ltd. v. Pushpalaya Printers, 2004 (3) SCC 694 thus:
“6. ….If the word “impact” is interpreted narrowly, the question G
of impact by any rail would not arise as the question of a rail
forcibly coming to the contact of a building or machinery would
not arise. In the absence of specific exclusion and the word
“impact” having more meanings in the context, it cannot be
confined to forcible contact alone when it includes the meanings
“to drive close”, “effective action of one thing upon another” and H
742 SUPREME COURT REPORTS [2019] 16 S.C.R.

A “the effect of such action”, it is reasonable and fair to hold in
the context that the word “impact” contained in clause 5 of the
insurance policy covers the case of the respondent to say that
damage caused to the building and machinery on account of the
bulldozer moving closely on the road was on account of its
“impact”. It is also settled position in law that if there is any
B ambiguity or a term is capable of two possible interpretations,
one beneficial to the insured should be accepted consistent with
the purpose for which the policy is taken, namely, to cover the
risk on the happening of certain event. Although there is no
ambiguity in the expression “impact,” even otherwise applying
C the rule of contra preferentem, the use of the word “impact” in
clause 5 in the instant policy must be construed against the
appellant. Where the words of a document are ambiguous, they
shall be construed against the party who prepared the document.
This rule applies to contracts of insurance, and clause 5 of the
insurance policy, even after reading the entire policy in the
D present case, should be construed against the insurer. A
Constitution Bench of this Court in General Assurance Society
Ltd. v. Chandmull Jain AIR 1966 SC 1644 has expressed that
(AIR p. 1649, para 11)
“in a contract of insurance there is requirement of uberrima
E fides, i.e., good faith on the part of the assured and the
contract is likely to be construed contra proferentem, that is,
against the company in case of ambiguity or doubt.”
(emphasis supplied)
73. As observed in Industrial Promotion & Investment
F Corporation of Orissa Ltd. v. New India Assurance Co. Ltd., (2016)
15 SCC 315 thus:
“10. We proceed to deal with the submission made by the counsel
for the appellant regarding the rule of contra proferentem. The
Common Law rule of construction “verba chartarum fortius
G accipiuntur contra proferentem” means that ambiguity in the
wording of the policy is to be resolved against the party who
prepared it. MacGillivray on Insurance Law1 deals with the rule
of contra proferentem as follows:
1
Legh-Jones, Longmore et al (Eds.) MacGillivray on Insurance Law (9 th Edn., Sweet
H and Maxwell, London 1997) at p.280.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 743
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

“The contra proferentem rule of construction arises only where A
there is a wording employed by those drafting the clause which
leaves the court unable to decide by ordinary principles of
interpretation which of two meanings is the right one. ‘One must
not use the rule to create the ambiguity — one must find the
ambiguity first.’ The words should receive their ordinary and B
natural meaning unless that is displaced by a real ambiguity either
appearing on the face of the policy or, possibly, by extrinsic
evidence of surrounding circumstances.”
(footnotes omitted)
11. Colinvaux’s Law of Insurance 2 propounds the contra C
proferentem rule as under:
“Quite apart from contradictory clauses in policies, ambiguities
are common in them, and it is often very uncertain what the
parties to them mean. In such cases, the rule is that the policy,
D
being drafted in language chosen by the insurers, must be taken
most strongly against them. It is construed contra proferentes,
against those who offer it. In a doubtful case, the turn of the
scale ought to be given against the speaker because he has not
clearly and fully expressed himself. Nothing is easier than for
the insurers to express themselves in plain terms. The assured E
cannot put his own meaning upon a policy, but, where it is
ambiguous, it is to be construed in the sense in which he might
reasonably have understood it. If the insurers wish to escape
liability under given circumstances, they must use words admitting
of no possible doubt. F
But a clause is only to be contra proferentes in cases of real
ambiguity. One must not use the rule to create an ambiguity. One
must find the ambiguity first. Even where a clause by itself is
ambiguous if, by looking at the whole policy, its meaning becomes
clear, there is no room for the application of the doctrine. So also G
where if one meaning is given to a clause, the rest of the policy
becomes clear, the policy should be construed accordingly.”
(emphasis supplied)

2
Robert and Merkin (Eds.), Colinvaux’s Law of Insurance (6 th Edn., 1990) at p.42. H
744 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 74. In our opinion, the rule mentioned above 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.
75. It is further submitted that for identifying the revenue, the
sole test is that it should conform with the definition of revenue as
B provided in AS-9. For interpreting the scope of the provisions, the
principle of noscitur a sociis has to be applied which provides that
when definition includes various heads and while they may not be
exhaustive as a rule of interpretation, what is being included within the
definition, would be an aid to interpreting the scope of the provisions.
For applying the said principle, reliance has been placed on,
C
(A) Vania Silk Mills v. C.I.T., Ahmedabad, 1991 (4) SCC 22,
on observation:-
“11. It is true that the definition of “transfer” in Section 2(47)
of the Act is inclusive, and therefore, extends to events and
D transactions which may not otherwise be “transfer” according
to its ordinary, popular and natural sense. It is this aspect of the
definition which has weighed with the High Court and, therefore,
the High Court has argued that if the words “extinguishment of
any rights therein” are substituted for the word “transfer” in
Section 45, the claim or compensation received from the
E insurance company would be attracted by the said section. The
High Court has, however, missed the fact that the definition also
mentions such transactions as sale, exchange etc. to which the
word “transfer” would properly apply in its popular and natural
import. Since those associated words and expressions imply the
F existence of the asset and of the transferee, according to the
rule of noscitur a sociis, the expression “extinguishment of any
rights therein” would take colour from the said associated words
and expressions, and will have to be restricted to the sense
analogous to them. If the legislature intended to extend the
definition to any extinguishment of right, it would not have
G
included the obvious instances of transfer, viz., sale, exchange
etc. Hence the expression “extinguishment of any rights therein”
will have to be confined to the extinguishment of rights on
account of transfer and cannot be extended to mean any
extinguishment of right independent of or otherwise than on
H account of transfer.”
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 745
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

(B) Swiss Ribbons v. Union of India, 2019 (4) SCC 17, A
“109. We are of the view that persons who act jointly or in
concert with others are connected with the business activity of
the resolution applicant. Similarly, all the categories of persons
mentioned in Section 5(24-A) show that such persons must be
“connected” with the resolution applicant within the meaning of B
Section 29-A(j). This being the case, the said categories of
persons who are collectively mentioned under the caption
“relative” obviously need to have a connection with the business
activity of the resolution applicant. In the absence of showing
that such person is “connected” with the business of the activity
C
of the resolution applicant, such person cannot possibly be
disqualified under Section 29-A(j). All the categories in Section
29-A(j) deal with persons, natural as well as artificial, who are
connected with the business activity of the resolution applicant.
The expression “related party,” therefore, and “relative”
contained in the definition sections must be read noscitur a sociis D
with the categories of persons mentioned in Explanation I, and
so read, would include only persons who are connected with the
business activity of the resolution applicant.”
(C) South Gujarat Roofing Tiles Manufacturers v. State of
Gujarat, 1976 (4) SCC 601, E
3. The question turns on a true construction of the explanation
to entry 22 which says that for the purpose of this entry potteries
industry “includes” the manufacture of the nine “articles of
pottery” specified therein. Pottery in a wide sense will take in
all objects that are made from clay and hardened by fire, from F
crude earthen pots to delicate porcelain. Mr Patel appearing for
the respondent, State of Gujarat, contends that the explanation
indicates that potteries industry in Entry 22 is intended to cover
all possible articles of pottery including Mangalore pattern roofing
tiles. Referring to the well-known use of the word ‘include’ in
interpretation clauses to extend the meaning of words and G
phrases occurring in the body of the statute, Mr. Patel submits
that the explanation, when it says that potteries industry “includes”
the nine named objects, what is meant is that it includes not only
these objects but other articles of pottery as well. It is true that
“includes” is generally used as a word of extension, but the H
746 SUPREME COURT REPORTS [2019] 16 S.C.R.

A meaning of a word or phrase is extended when it is said to
include things that would not properly fall within its ordinary
connotation. We may refer to the often quoted observation of
Lord Watson in Dilworth v. Commissioner of Stamps that when
the word “include” is used in interpretation clauses to enlarge
the meaning of words or phrases in the statute
B
“these words or phrases must be construed as comprehending,
not only such things as they signify according to their natural
import but also those things which the interpretation clause
declares that they shall include.”
C Thus where “includes” has an extending force, it adds to the word
or phrase a meaning which does not naturally belong to it. It is
difficult to agree that “includes” as used in the explanation to
Entry 22 has that extending force. The explanation says that for
the purpose of Entry 22, potteries industry includes the
manufacture of the nine “articles of pottery” specified in the
D explanation. If the objects specified are also “articles of pottery”,
then these objects are already comprised in the expression
“potteries industry”. It hardly makes any sense to say that
potteries industry includes the manufacture of articles of pottery,
if the intention was to enlarge the meaning of potteries industry
E in any way.
4. We are also unable to agree with Mr Patel that the articles
specified in the explanation may have been mentioned out of
abundant caution to emphasize the comprehensive character of
the entry, to indicate that all varieties of pottery are included
F therein. This argument, though more plausible, does not also seem
acceptable. It is possible that one might have doubts whether
things like refractories or electrical or textile accessories would
pass under the description pottery as that word is used in
common parlance, but the explanation also mentions crockery and
toys regarding which there could be hardly any doubt. The
G inclusion in the list of objects which are well-recognised articles
of pottery makes it plain that the explanation was added to the
entry not by way of abundant caution.
5. The contention of Mr. Tarkunde for the appellants is that the
articles mentioned in the explanation were intended to be
H exhaustive of the objects covered by Entry 22. According to Mr,
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 747
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

Tarkunde if the legislature wanted to bring within the entry all A
possible articles of pottery then there was hardly any point in
mentioning only a few of them by way of explanation. To this
Mr Patel’s reply is that it is well-known that where the legislature
wants to exhaust the significance of the term defined, it uses the
word “means” or the expression “means and includes”, and that
B
if the intention was to make the list exhaustive, the legislature
would not have used the word “includes” only. We do not think
there could be any inflexible rule that the word ‘include’ should
be read always as a word of extension without reference to the
context. Take for instance Entry 19 in the schedule which also
has an explanation containing the word “includes”. Entry 19 is C
as follows:
“Employment in any tobacco processing establishment, not
covered under Entry 3.
Explanation.—For the purpose of this entry, the expression
D
‘processing’ includes packing or unpacking, breaking up,
sieving, threshing, mixing, grading, drying, curing or otherwise
treating the tobacco (including tobacco leaves and stems) in
any manner.”
Entry 3 to which Entry 19 refers reads:
E
“Employment in any tobacco (including bidi making)
manufactory.”
It is clear from the explanation to Entry 19 that there could be
no other way or manner of “processing” besides what is stated
as included in that expression. Though “include” is generally used F
in interpretation clauses as a word of enlargement, in some cases
the context might suggest a different intention. Pottery is an
expression of very wide import, embracing all objects made of
clay and hardened by heat. If it had been the legislature’s
intention to bring within the entry all possible articles of pottery, G
it was quite unnecessary to add an explanation. We have found
that the explanation could not possibly have been introduced to
extend the meaning of potteries industry or the articles listed
therein added ex abundanti cautela. It seems to us therefore
that the legislature did not intend everything that the potteries
industry turns out to be covered by the entry. What then could H
748 SUPREME COURT REPORTS [2019] 16 S.C.R.

A be the purpose of the explanation. The explanation says that, for
the purpose of Entry 22, potteries industry “includes” manufacture
of the nine articles of pottery named therein. It seems to us that
the word “includes” has been used here in the sense of ‘means’;
this is the only construction that the word can bear in the context.
In that sense it is not a word of extension, but limitation; it is
B
exhaustive of the meaning which must be given to potteries
industry for the purpose of Entry 22. The use of the word
“includes” in the restrictive sense is not unknown. The
observation of Lord Watson in Dilworth v. Commissioner of
Stamps which is usually referred to on the use of “include” as a
C word of extension, is followed by these lines:
“But the word ‘include’ is susceptible of another construction,
which may become imperative, if the context of the Act is
sufficient to show that it was not merely employed for the
purpose of adding to the natural significance of the words or
D expressions defined. It may be equivalent to ‘mean and
include’, and in that case it may afford an exhaustive
explanation of the meaning which, for the purposes of the Act,
must invariably be attached to these words or expressions.”
It must therefore be held that the manufacture of Mangalore
E pattern roofing tiles is outside the purview of Entry 22.”
(emphasis supplied)
76. The definition of gross revenue is crystal clear in the
agreement. How the adjusted gross revenue to be arrived at is also
F 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,
G 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
H be binding in the previous judgment in Union of India v. AUSPI (2011).
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 749
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

The submission that the contract recognises the applicability of A
accounting standards, in our opinion, 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
B
revenue governed by Clause 19.1 of the agreement, the definition of
Accounting Standard-9 cannot supersede it which is a general one.
77. The submission has been made that the accounting standards
themselves make it clear what should be included as revenue and
accounting standards have been incorporated in the agreement and C
incorporated by reference in the licence agreement. For this, reliance
has been placed on General Assurance Society Ltd. v. Chandmull
Jain, AIR 1966 SC 1644, wherein it is observed:
“11. A contract of insurance is a species of commercial
transactions, and there is a well-established commercial practice D
to send cover notes even prior to the completion of a proper
proposal or while the proposal is being considered or a policy is
in preparation for delivery. A cover note is a temporary and limited
agreement. It may be self-contained, or it may incorporate by
reference the terms and conditions of the future policy. When
the cover note incorporates the policy in this manner, it does not E
have to recite the term and conditions, but merely to refer to a
particular standard policy. If the proposal is for a standard policy
and the cover note refers to it, the assured is taken to have
accepted the terms of that policy. The reference to the policy
and its terms and conditions may be expressed in the proposal F
or the cover note or even in the letter of acceptance, including
the cover note. The incorporation of the terms and conditions of
the policy may also arise from a combination of references in
two or more documents passing between the parties. Documents
like the proposal, cover note, and the policy are commercial
documents, and to interpret them, commercial habits and practice G
cannot altogether be ignored. During the time the cover note
operates, the relations of the parties are governed by its terms
and conditions, if any, but more usually by the terms and conditions
of the policy bargained for and to be issued. When this happens,
the terms of the policy are incipient, but after the period of H
750 SUPREME COURT REPORTS [2019] 16 S.C.R.

A temporary cover, the relations are governed only by the terms
and conditions of the policy unless insurance is declined in the
meantime. Delay in issuing the policy makes no difference. The
relations even then are governed by the future policy if the cover
notes give sufficient indication that it would be so. In other
respects there is no difference between a contract of insurance
B
and any other contract except that in a contract of insurance
there is a requirement of uberrima fides i.e. good faith on the
part of the assured and the contract is likely to be construed
contra proferentem that is against the company in case of
ambiguity or doubt. A contract is formed when there is an
C unqualified acceptance of the proposal. Acceptance may be
expressed in writing, or it may even be implied if the insurer
accepts the premium and retains it. In the case of the assured,
a positive act on his part by which he recognises or seeks to
enforce the policy amounts to an affirmation of it. This position
was clearly recognised by the assured himself, because he wrote,
D
close upon the expiry of the time of the cover notes, that either
a policy should be issued to him before that period had expired
or the cover note extended in time. In interpreting documents
relating to a contract of insurance, the duty of the court is to
interpret the words in which the contract is expressed by the
E parties because it is not for the court to make a new contract,
however reasonable if the parties have not made it themselves.
Looking at the proposal, the letter of acceptance and the cover
notes, it is clear that a contract of insurance under the standard
policy for fire and extended to cover flood, cyclone etc. had come
into being.”
F
78. In M.R. Engineers & Contractors Pvt. Ltd. v. Som Datt
Builders Ltd., (2009) 7 SCC 696, the Court held:
“24. The scope and intent of Section 7(5) of the Act may
therefore be summarised thus:
G
(i) An arbitration clause in another document, would get
incorporated into a contract by reference, if the
following conditions are fulfilled:
(1) the contract should contain a clear reference to the
H documents containing arbitration clause,
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 751
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

(2) the reference to the other document should clearly A
indicate an intention to incorporate the arbitration
clause into the contract,
(3) the arbitration clause should be appropriate, that is
capable of application in respect of disputes under
the contract and should not be repugnant to any term B
of the contract.
(ii) When the parties enter into a contract, making a general
reference to another contract, such general reference
would not have the effect of incorporating the arbitration
clause from the referred document into the contract C
between the parties. The arbitration clause from another
contract can be incorporated into the contract (where
such reference is made), only by a specific reference
to arbitration clause.
D
(iii) Where a contract between the parties provides that the
execution or performance of that contract shall be in
terms of another contract (which contains the terms and
conditions relating to performance and a provision for
settlement of disputes by arbitration), then, the terms of
the referred contract in regard to execution/performance E
alone will apply, and not the arbitration agreement in the
referred contract, unless there is special reference to
the arbitration clause also.
(iv) Where the contract provides that the standard form of F
terms and conditions of an independent trade or
professional institution (as for example the standard
terms and conditions of a trade association or architects
association) will bind them or apply to the contract, such
standard form of terms and conditions including any
provision for arbitration in such standard terms and G
conditions, shall be deemed to be incorporated by
reference. Sometimes the contract may also say that
the parties are familiar with those terms and conditions
or that the parties have read and understood the said
terms and conditions. H
752 SUPREME COURT REPORTS [2019] 16 S.C.R.

A (v) Where the contract between the parties stipulates that
the conditions of contract of one of the parties to the
contract shall form a part of their contract (as for
example the general conditions of contract of the
Government where the Government is a party), the
arbitration clause forming part of such general conditions
B
of contract will apply to the contract between the
parties.”
79. 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
C 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
D 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
E gross revenue.
80. The submission has been raised on the ground of approbation
and reprobation relying on Suzuki Parasrampuria Suitings Private
Limited v. Official Liquidator of Mahendra Petrochemicals Limited,
(2018) 10 SCC 707. The observations made are extracted hereunder:
F
“12. A litigant can take different stands at different times but
cannot take contradictory stands in the same case. A party cannot
be permitted to approbate and reprobate on the same facts and
take inconsistent shifting stands. The untenability of an
inconsistent stand in the same case was considered in Amar
G Singh v. Union of India, (2011) 7 SCC 69, observing as follows:
(SCC p. 86, para 50)
“50. This Court wants to make it clear that an action at law
is not a game of chess. A litigant who comes to court and
invokes its writ jurisdiction must come with clean hands. He
H cannot prevaricate and take inconsistent positions.”
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 753
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

13. A similar view was taken in Joint Action Committee of Air A
Line Pilots’ Assn. of India v. DGCA, (2011) 5 SCC 435,
observing: (SCC p. 443, para 12)
“12. The doctrine of election is based on the rule of
estoppel—the principle that one cannot approbate and
reprobate inheres in it. The doctrine of estoppel by-election B
is one of the species of estoppels in pais (or equitable
estoppel), which is a rule in equity. … Taking inconsistent
pleas by a party makes its conduct far from satisfactory.
Further, the parties should not blow hot and cold by taking
inconsistent stands and prolong proceedings unnecessarily.”
C
81. In Jal Mahal Resorts Private Limited v. K.P. Sharma,
(2014) 8 SCC 866, the Court observed:
“4. However, in spite of withdrawal of the special leave
petitions, if the petitioner State is taking a diametrically
opposite stand which it had taken before the High Court D
as also before this Court when the arguments were
concluded, we surely have reservations in permitting the
learned Senior Counsel to take an opposite stand now
and advance arguments exactly the opposite of what
was submitted in the High Court as also before this
E
Court through the earlier counsel being the Attorney
General.
5. However, the learned Senior Counsel submitted that the
State is a respondent in other special leave petitions also
which have been preferred by the other petitioners and, F
therefore, as a respondent therein, they are eligible to
advance their arguments.
6. There is no doubt that the impleaded respondent may
advance his arguments before the Court as he has been
impleaded as a party-respondent but under the garb of
G
advancing arguments a stand which was taken before
the High Court earlier is changed at the stage of special
leave petition, cannot be permitted especially when the
counsel, as already stated, has withdrawn the special
leave petitions preferred by the State. He may, however,
advance submissions as a respondent in other matters, H
754 SUPREME COURT REPORTS [2019] 16 S.C.R.

A which he is at liberty to make within a period of two
weeks, which, however, shall be subject to its
acceptance.”
82. In A.P. Dairy Development Corporation Federation v. B.
Narasimha Reddy, (2011) 9 SCC 286, the following observations were
B made:
“40. In the matter of the Government of a State, the succeeding
Government is duty-bound to continue and carry on the unfinished
job of the previous Government, for the reason that the action is
that of the “State”, within the meaning of Article 12 of the
C Constitution, which continues to subsist and therefore, it is not
required that the new Government can plead contrary to the State
action taken by the previous Government in respect of a particular
subject. The State, being a continuing body can be stopped from
changing its stand in a given case, but where after holding enquiry
it came to the conclusion that action was not in conformity with
D law, the doctrine of estoppel would not apply. Thus, unless the
act done by the previous Government is found to be contrary to
the statutory provisions, unreasonable or against policy, the State
should not change its stand merely because the other political
party has come into power. “Political agenda of an individual or
E a political party should not be subversive of rule of law.” The
Government has to rise above the nexus of vested interest and
nepotism, etc. as the principles of governance have to be tested
on the touchstone of justice, equity and fair play. The decision
must be taken in good faith and must be legitimate. (Vide Onkar
Lal Bajaj v. Union of India, (2003) 2 SCC 673, State of
F
Karnataka v. All India Manufacturers Organisation, (2006)
4 SCC 683 and State of T.N. v. K. Shyam Sunder, (2011) 8 SCC
737.)”
83. In our considered opinion, it cannot be said that DOT has
taken inconsistent stands at different stages of the same litigation. Their
G 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 extracted above.
H The licensees were aware of items specifically included in the
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 755
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

agreement. TSPs agreed to interpretation and accepted it as held by A
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
B
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 C
submissions raised by them, counters and militates against their own
interest and paves the way in favour of DOT.
84. A submission has been raised that the definition of gross
revenue is not exhaustive. It only includes those streams which are
specifically included in the definition of AGR. If it is an inclusive D
definition of AGR, and all receipts were ipso facto part of AGR, then
there was no occasion to further provide in clause 2.2 (b)(ii) that the
revenue from value-added services was to be treated as part of AGR.
Further, the licensee was obliged to maintain separate account for
service defined in Annexure 1 to the licence in clause 55 to mean
service in a licensed service area. By the fact that separate provision E
is made for value-added services, a separate account has to be
maintained as per clauses 22.1, 22.2 and 22.3 that is for arriving at the
figure of revenue and step in aid, to clarify how the licensee has to
operate, that would not change the definition of gross revenue which
is the meaning of revenue itself is apparent, same is gross inflow of F
the cash, and the amount which is receivable as provided in AS-9 also.
Thus, 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 G
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. H
756 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 85. 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
B
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.
C 86. DOT has urged that the Central Government has exclusive
privilege under section 4 of the Telegraph Act; thus, it is bound to get
the best price for natural resources. To part with the exclusive privilege
under the revenue sharing regime is extremely beneficial to the
licensees. Thus, the State must get the price for its valuable right as
D mandated under Article 14. In our opinion, 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 in Re : Natural Resources Allocation, 2012 (10) SCC 1.
The Government being the sole repository of all the resources in the
E 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 as observed in State of Orissa & Ors. v. Harinarayan Jaiswal
F & Ors., (1972) 2 SCC 36, thus:
“13. Even apart from the power conferred on the Government
under Sections 22 and 29, we fail to see how the power retained
by the Government under clause (6) of its order, dated January
6, 1971, can be considered as unconstitutional. As held by this
G Court in Cooverjee B. Bharucha case, one of the important
purpose of selling the exclusive right to sell liquor in wholesale
or retail is to raise revenue. Excise revenue forms an important
part of every State’s revenue. The Government is the guardian
of the finances of the State. It is expected to protect the financial
interest of the State. Hence quite naturally, the Legislature has
H empowered the Government to see that there is no leakage in
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 757
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

its revenue. It is for the Government to decide whether the price A
offered in an auction sale is adequate. While accepting or
rejecting a bid, it is merely performing an executive function. The
correctness of its conclusion is not open to judicial review. We
fail to see how the plea of contravention of Article 19(1)(g) or
Article 14 can arise in these cases. The Government’s power to
B
sell the exclusive privileges set out in Section 22 was not denied.
It was also not disputed that those privileges could be sold by
public auction. Public auctions are held to get the best possible
price. Once these aspects are recognised, there appears to be
no basis for contending that the owner of the privileges in question
who had offered to sell them cannot decline to accept the highest C
bid if he thinks that the price offered is inadequate. There is no
concluded contract till the bid is accepted. Before there was a
concluded contract, it was open to the bidders to withdraw their
bids — see Union of India v. Bhimsen Walaiti Ram, (1970) 2
SCR 594. By merely giving bids, the bidders had not acquired
D
any vested rights. The fact that the Government was the seller
does not change the legal position once its exclusive right to deal
with those privileges is conceded. If the Government is the
exclusive owner of those privileges, reliance on Article 19(1)(g)
or Article 14 becomes irrelevant. Citizens cannot have any
fundamental right to trade or carry on business in the properties E
or rights belonging to the Government—nor can there be any
infringement of Article 14, if the Government tries to get the best
available price for its valuable rights. ….”
(emphasis supplied)
F
87. Similar is the case law laid down in Har Shankar v. Excise
& Taxation Commissioner, 1975 (1) SCC 737; Government of A.P.
v. Anabeshahi Wine & Distilleries (P) Ltd., (1988) 2 SCC 25; Excise
Commissioner v. Issac Peter, (1994) 4 SCC 104; State of Orissa v.
Narain Prasad (1996) 5 SCC 740, State of M.P. v. KCT Drinks Ltd.,
(2003) 4 SCC 748 and State of Punjab v. Devans Modern Breweries G
Ltd., (2004) 11 SCC 26.
88. A licence granted under section 4(1) is in the nature of a
contract. DOT has relied upon Khardah Company Ltd. v. Raymond
& Co. (India) Pvt. Ltd., 1963 (3) SCR 183 in which it has been
observed that once a contract has been reduced to writing, terms have H
758 SUPREME COURT REPORTS [2019] 16 S.C.R.

A to be ascertained from the agreement. It may be relevant to look into
the circumstances in case need arises, which resulted in the inclusion
of the definition of AGR in the licence agreement. The deliberations
were held with the licensees, experts, and then finally migration package,
revenue sharing regime is being consented to, was worked out in which
the definition of adjusted gross revenue as a part of the financial
B
condition of the licence is mentioned. 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.
A party is free to enter into a contract with a State, there is no
compulsion, it is voluntary on both sides and binding and cannot be
C termed to be unfair as observed in Assistant Excise Commissioner &
Ors. v. Issac Peters & Ors. (1994) 4 SCC 104, thus:
“26. …..We are, therefore, of the opinion that in case of
contracts freely entered into with the State, like the present ones,
there is no room for invoking the doctrine of fairness and
D reasonableness against one party to the contract (State), for the
purpose of altering or adding to the terms and conditions of the
contract, merely because it happens to be the State. In such
cases, the mutual rights and liabilities of the parties are governed
by the terms of the contracts (which may be statutory in some
cases) and the laws relating to contracts. It must be remembered
E that these contracts are entered into pursuant to public auction,
floating of tenders or by negotiation. There is no compulsion on
anyone to enter into these contracts. It is voluntary on both sides.
There can be no question of the State power being involved in
such contracts. It bears repetition to say that the State does not
guarantee profit to the licensees in such contracts. There is no
F warranty against incurring losses. It is a business for the
licensees. Whether they make a profit or incur a loss is no concern
of the State. In law, it is entitled to its money under the contract.
It is not as if the licensees are going to pay more to the State in
case they make substantial profits. We reiterate that what we
G have said hereinabove is in the context of contracts entered into
between the State and its citizens pursuant to public auction,
floating of tenders or by negotiation. It is not necessary to say
more than this for the purpose of these cases. What would be
the position in the case of contracts entered into otherwise than
by public auction, floating of tenders or negotiation, we need not
H express any opinion herein.”
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 759
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

89. The licensees who have taken the advantage under the A
licence, carry certain obligations. The licensee is bound to discharge
the obligation while taking benefit under the licence of migration
package, for this purpose as held in Shyam Telelink Ltd. v. Union of
India, 2010 (10) SCC 165, thus:
“21. The unconditional acceptance of the terms of the package B
and the benefit which the appellant derived under the same will
estop the appellant from challenging the recovery of the dues
under the package or the process of its determination. No dispute
has been raised by the appellant and rightly so in regard to the
payment of outstanding licence fee or the interest due thereon.
The controversy is limited to the computation of liquidated C
damages of Rs. 8 crores out of which Rs. 7.3 crores was paid
by the appellant in the beginning without any objection followed
by a payment of Rs. 70 lakhs made on 29-5-2001.
22. Although the appellant had sought waiver of the liquidated
damages yet upon rejection of that request it had made the D
payment of the amount demanded which signified a clear
acceptance on its part of the obligation to pay. If the appellant
proposed to continue with its challenge to demand, nothing
prevented it from taking recourse to appropriate proceedings and
taking the adjudication process to its logical conclusion before
exercising its option. Far from doing so, the appellant gave up E
the plea of waiver and deposited the amount which clearly
indicates acceptance on its part of its liability to pay especially
when it was only upon such payment that it could be permitted
to avail of the migration package. Allowing the appellant at this
stage to question the demand raised under the migration package F
would amount to permitting the appellant to accept what was
favourable to it and reject what was not. The appellant cannot
approbate and reprobate.
23. The maxim qui approbat non reprobat (one who approbates
cannot reprobate) is firmly embodied in English common law and
G
often applied by courts in this country. It is akin to the doctrine
of benefits and burdens which at its most basic level provides
that a person taking advantage under an instrument which both
grants a benefit and imposes a burden cannot take the former
without complying with the latter. A person cannot approbate and
reprobate or accept and reject the same instrument. H
760 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 28. For the reasons set out by us hereinabove, we have no
hesitation in holding that the appellant was not entitled to question
the terms of the migration package after unconditionally accepting
and acting upon the same.”
90. After the introduction of the migration package policy, 1999,
B there is an exponential growth of the telecom sector. In Bharti Cellular
Ltd. v. Union of India, 2010 (10) SCC 174, this Court held that
acceptance of benefits under the package precluded them from
questioning the terms of the same. The Court observed:
“8. There is, in our opinion, no legal infirmity in the view taken
C by the Tribunal. Once the appellant-petitioner had specifically and
unconditionally agreed to accept the migration package and given
up all disputes relating to licence agreement for the period up to
31-7-1999, it was not open to it to turn around and agitate any
such dispute after availing of the migration package. A party
which has unconditionally accepted the package cannot after such
D
acceptance reject the conditions subject to which the benefits
were extended to it under the package. It cannot reject what is
inconvenient and onerous while accepting what is beneficial to
its interests. The package having been offered subject to the
conditions that all disputes relating to the licence agreement for
E the period ending 31-7-1999 shall stand abandoned by the
operators, there was no room for going back on that
representation.”
(emphasis supplied)
91. The terms and conditions cannot be said to be oppressive as
F
submitted on behalf of the licensees on the strength of Central Inland
Water Transport Corporation v. Brojo Nath Ganguly, 1986 (3) SCC
156, 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
G bargaining is not applicable as held with respect to migration package
in S.K. Jain v. State of Haryana, 2009 (4) SCC 35, thus:
“8. There is, in our opinion, no legal infirmity in the view taken
by the Tribunal. Once the appellant-petitioner had specifically and
unconditionally agreed to accept the migration package and given
H up all disputes relating to licence agreement for the period up to
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 761
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

31-7-1999, it was not open to it to turn around and agitate any A
such dispute after availing of the migration package. A party
which has unconditionally accepted the package cannot after such
acceptance reject the conditions subject to which the benefits
were extended to it under the package. It cannot reject what is
inconvenient and onerous while accepting what is beneficial to
B
its interests. The package having been offered subject to the
conditions that all disputes relating to the licence agreement for
the period ending 31-7-1999 shall stand abandoned by the
operators, there was no room for going back on that
representation.”
(emphasis supplied) C

92. Once benefit has been drawn, the licensees cannot deny
validity or binding effect of contract. In Cauvery Coffee Traders,
Mangalore v. Hornor Resources (International) Co. Ltd., (2011) 10
SCC 420) it was observed: D
“A party cannot be permitted to “blow hot and cold”, “fast and
loose” or “approbate and reprobate”. Where one knowingly
accepts the benefits of a contract or conveyance or an order, is
estopped to deny the validity or binding effect on him of such
contract or conveyance or order. This rule is applied to do equity, E
however, it must not be applied in a manner as to violate the
principles of right and good conscience.”

93. In R.N. Gosain v. Yashpal Dhir, AIR 1993 SC 352, it was
held:
F
“10. Law does not permit a person to both approbate and
reprobate. This principle is based on the doctrine of election which
postulates that no party can accept and reject the same instrument
and that ‘a person cannot say at one time that a transaction is
valid and thereby obtain some advantage, to which he could only G
be entitled on the footing that it is valid, and then turn round and
say it is void for the purpose of securing some other advantage’.”

94. Submissions have been raised in respect of various revenue
heads not being revenue cannot be included within the purview of gross
revenue. We propose to deal with each of them under separate heads. H
762 SUPREME COURT REPORTS [2019] 16 S.C.R.

A In re: Discount and Commissions:
95. The Tribunal has dealt with discounts, and commissions under
3 heads : (i) discounts allowed on international roaming; (ii) commission
and discount allowed to distributors on sale of pre-paid vouchers; (iii)
goodwill waiver, discount and rebates.
B
96. The Tribunal held with respect to discounts allowed on
international roaming that if the discounts are in the form of reduced
billing and the amount booked in the profit and loss account is on the
basis of the invoices raised and no deduction was shown on account
of discount, no addition may be made in the same on the ground that
C the billing was on a discounted price. The tribunal has further held that
if the amount billed is for a higher amount and the discount is in the
form of volume discount given separately, the billed amount should be
taken as revenue, and the discount may be treated as an expense which
is not open to deduction under clause 19.1. A credit note given after
D the billing may also be treated as an expense. If the revenue booked in
the profit and loss account shows netting off on account of any discount,
the amount netted off may also be added up for computation of gross
revenue.
97. The tribunal has adopted two different criteria concerning
E discounts on international roaming. With respect to commission and
discount allowed to distributors on sale of pre-paid vouchers, the tribunal
has held that if the sale and invoicing is on Maximum Retail Price (MRP)
and if any discount is given separately then in terms of clause 19.1,
such discount is not deductible even if the revenue booked in the profit
and loss account is after netting off the discount. On the other hand, if
F the sale is on a stated/agreed price, invoiced at that agreed price and
booked under the revenue in the profit and loss account accordingly,
without netting off any discount, then the actual selling price would be
the revenue and the difference between the MRP and this selling price
cannot be added to gross revenue.
G
98. Concerning goodwill waiver, discount, and rebates, the tribunal
has held that under clause 19.1, the items shall form part of gross
revenue without netting off any expenses. The case of licensees on
this score has not been accepted. In the case of wrong billing and its
revision, the correct differential amount cannot be taken as part of gross
H revenue.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 763
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

99. It has been urged on behalf of licensees that the discounts A
are not like expenses. The treatment of discount as expenditure is
contrary to the fundamental principle of accounting. Expenses are
always in the form of outflow of cash. In the telecom sector, discounts
are given to the customers to get the advantage of the much lesser
amount. The same induce gross inflow of cash to a telecom company.
B
Therefore, discounts can never be treated as an expenditure.
100. It is further submitted on behalf of the licensees that as per
binding and mandatory principle of AS-9, the ICAI has declared
discounts, rebates, deductions, lesser realisation of cost price are not
to be treated as an expenditure. It is further submitted that an agreement
between the parties determines the revenue arising on a transaction. It C
is measured at the fair value of the consideration received or receivable
considering the amount of consideration. The amount of any discount
or volume-based discount and volume rebates are not considered as
revenue.
101. It is further submitted that the licensees have been given D
the discount that is transparently reflected in its invoice. The appellant
only receives the discounted amount, which is the realised revenue or
the cash inflow in their hands. The licence fee is paid on this realised
amount.
102. It is further submitted that the licensees gives “trade E
discounts” and “subscriber’s discount,” and both are exempted from
recognition as revenue for the reason that firstly as per AS-9, trade
discounts are not included within the definition of revenue since they
represent a reduction of cost. Guidance Note 5 on terms used in financial
statements verifies that the trade discount is a reduction granted by a F
supplier from the list price of goods or services and the DOT in para
47 of the affidavit dated 11.7.2003 has mentioned that trade discounts
shown in the invoice should not be included in gross revenue. These
discounts are transparently reflected in the invoice raised on the
distributor.
G
103. Concerning the “subscriber’s discount,” it is submitted on
behalf of the licensees that these discounts offered to the customers
or subscribers are part of the tariff plan. Subscriber has a choice of
different rental plans offered by the appellants, where certain discounts
are offered by way of some free minutes/calls/SMS/VAS/value. Once
a subscriber selects a plan, he is entering into a contract with the H
764 SUPREME COURT REPORTS [2019] 16 S.C.R.

A operator, is entitled to services and discounts, as indicated in the plan.
Usually, these are in the form of free calls or additional data, and no
revenue is collectible. Hence it cannot be taken into account for
determining licence fee. DOT is asking for licence fee on the notional
revenue for these free calls/SMS/VAS minutes/data when the appellants
collect no amount on this account. These amounts of discounts are
B
transparently reflected in the invoice raised on the subscriber as
memorandum.
104. It is further submitted on behalf of the licensees that services
are offered by the licensees and not goods. For payment of service
tax, the licensees consider the gross amount charged as derived and
C
mandated under section 67 of the Service Tax Act, 1994, which includes
only the amount realised by the licensees and not the notional amount.
Circular No.23/3/97/-S.T. dated 13.10.1997, mandates that the service
tax liability is only concerning the discounted price so received by the
Cellular companies. The licensees frequently offer discounts as they
D are used as competitive tools to increase business in the long run. Those
were inevitable as there were 8 to 10 operators operating in the same
geography, and the licensees had to match highly competitive prices
offered, especially by new entrants. Discounts help to survive and grow
business and increase revenue, which is to the advantage of DOT.
E 105. On behalf of the DOT, it has been submitted that discounts
over and above the agreed charges are part of the overall commercial
strategy to enhance business. Hence, these discounts are like expenses.
As per definition of “gross revenue” in clause 19.1 of the agreement,
it is not permissible to set off these volume-based discounts against the
F revenue as expenses are not permitted to be netted off, such amounts
form part of revenue; otherwise, it would lead to accounting jugglery,
which is very consciously avoided by purposefully drafting the AGR
definition in “inclusive” terms. Otherwise, the discounts may be used
by the company to reduce its costs, and the profitability of the company
may remain unaffected, but the gross revenue for the computation of
G AGR may be reduced. As the company may make contracts with
distributors and provide them with huge discounts in the form of reduced
billing. To say this (i), the company may make contracts with the
distributors to sell pre-paid vouchers of Rs.100 for Rs.70. Against the
discount, the company may make with the distributors further agreement
H reducing the company’s cost, such as the supply of contractual
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 765
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

workforce, the printing of paper vouchers, etc. Thus, it would cause A
evade of the licence fee without affecting the profitability of the
company. The commissions thus form part of the income. The
commission is nothing but “expenses” for growth in the business of the
licensees, it cannot be netted off while computing the gross revenue.
The finding, to the extent it is contrary, recorded by TDSAT is B
derogatory to the contractual definition of gross revenue. DOT also
submits that the question of discount was raised earlier in the order
dated 30.8.2007 by TDSAT. This Court did not accept it; as such, it is
barred by res judicata and the question as to discount on international
roaming, and questions as to other discounts, were not raised before
TDSAT. As such, these objections concerning discounts allowed to C
distributors on sale of pre-paid vouchers are barred by the principle of
constructive res judicata.
106. When we consider the rival submissions it has been
mentioned in the communication dated 26.7.2001 that the interest
income, dividend income, value of rebates, discounts, free calls, and D
reimbursement from the USO funds have to be included in the adjusted
gross revenue. Consequently, a prayer was made to set aside the
communication dated 26.7.2001 in Petition No.7 of 2003. Prayer has
not been granted on the ground that the Government has not accepted
the recommendations of TRAI and the decision of the Government is E
final, binding and conclusive as has been held by this Court in AUSPI
(2011). Finding has been recorded that parties have agreed to aforesaid
position as reflected in communication dated 26.7.2001.
107. When we ponder on the definition of “gross revenue” in
clause 19.1 of the licence agreement, it is apparent that the gross F
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 G
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 AS-9 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 H
766 SUPREME COURT REPORTS [2019] 16 S.C.R.

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
B 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 scuttle 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
C of revenue i.e., gross revenue under the licence agreement has to
prevail. In our considered opinion, ‘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
D 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 misconceived submission.
Though artistically designed with ingenuity, however, the same is
misconceived one on in-depth scrutiny.

E 108. The submission was raised on behalf of the licensees relying
upon J.K. Industries (supra) that fair value has to be taken into
consideration to reduce discounts etc. 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.
F 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.
109. With the advent of modern technology, the mode of business
G transactions has changed. The number of online purchases and sales
has been continually growing, and the techniques to retain clients online
are being utilised. Unlike sales promotion schemes in the case of off-
line transactions, the online transactions of sales carry cash back
rewards, discount coupons, and reward points. The incentives may
H include cash coupons, discount coupons, cash discounts, cash-back and
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 767
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

credit points, etc. The various incentives affect the amount of revenue A
to be recognised. Under IND AS-18 Revenue or IND AS-115, Revenue
from Contracts with Customers states that revenue shall be measured
at the fair value of the consideration received or receivable after taking
into account the number of various incentives provided to the customers.
110. Reliance has been placed on Union of India v. Bombay B
Tyres International Pvt. Ltd., (2005) 3 SCC 787, wherein this Court
has observed that trade discount should be allowed to be deducted from
the sale price. The decision is in the context of the Central Excise &
Salt Act, 1944. The decision has no relevance to consider the concept
of gross revenue under the licence agreement. Reliance has also been C
placed on the decision of this Court in Deputy Commissioner of Sales
Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s. Advani
Oorlikon (P) Ltd., (1980) 1 SCC 360, in which this Court considered
the question of taxable turnover and the concept of sale price under
the Sales Tax Act. It was held that the trade discount on catalogue
price allowed by the wholesaler to the retailer is not includible in the D
taxable turnover. Trade discount is distinct from cash discount. A cash
discount is a discount granted in consideration of prompt payment. A
trade discount is a deduction from the catalogue price of goods allowed
by wholesalers to retailers engaged in the trade. Reliance has also been
placed on the decision of Delhi High Court in M/s. United Exports v. E
Commissioner of Income Tax, Delhi (2009) SCC Online Del 2566
rendered in the context of the provisions of section 40-A(2)(b) of the
Income-tax Act, 1961. Certain trade discount was given. The High Court
held that the provision pertained to disallowance to an expenditure, an
amount spent by the assessee as an expenditure. For that, actual
payment must be made. There has to be an expenditure incurred before F
the provision can be said to be applicable. Trade discount was held not
to be an expenditure as it is incurred for which allowance could have
been claimed under section 40(A)(2). Above mentioned decisions are
wholly inapplicable, given the definition of gross revenue and have been
rendered in context of concerning provisions of different statutes. G
111. Reliance has also been placed on IFB Industries Ltd. v.
State of Kerala, (2012) 4 SCC 618. The question coming up for
consideration was the discount on qualifying for deduction under Rule
9(a) of 1963 Rules. The trade discount was given for dealers on
achieving a pre-set sales target. It was held that for the discount on H
768 SUPREME COURT REPORTS [2019] 16 S.C.R.

A qualifying for deduction under Rule 9(a) of the said Rules must be shown
in invoice, itself and that it would not be good enough to show it
employing a credit note issued after the sale. The decision is on the
method of computation when discount can be allowed on sales-tax and
VAT under the Kerala General Sales Tax Rules, 1963, and has no
B relevance. In Commissioner of Central Excise, Madras v. Addison
& Co. Ltd., (2016) 10 SCC 56, the question of turnover discount came
up for consideration under section 11-B of the Central Excise Act, 1944.
It was held that trade discounts should not be disallowed because they
are not payable at the time of each invoice or deducted from the invoice
price. In Southern Motors v. State of Karnataka & Ors., (2017) 3
C SCC 467, a question arose of trade discount given post-issuance of tax/
sale invoice, a deduction from the sale price for computing taxable
turnover when the discount was not reflected in the tax invoice or bill
of sale. It was held that it has to be proved that such discounts were
given. The decision was in the context of Karnataka Value Added Tax
D Rules, 2005. Yet in Maya Appliances Pvt. Ltd. v. Additional
Commissioner of Commercial Taxes & Ors., (2018) 2 SCC 756 has
also been relied upon where the question of computation of taxable
turnover came up for consideration in the context of Karnataka Value
Added Tax Act, 2003, with respect to all regular trade discounts and
they are allowable as permissible deductions, if proper proof is shown.
E
112. The decisions have no relevance having been rendered under
the provisions of different statutes and for construing the definition of
gross revenue under the licence agreement, which has to prevail.

113. Reliance has been placed on service tax Circular dated
F 13.10.1997, which provides that service tax liability is only in respect
of the discounted price so received by the Cellular companies. 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
G 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
H reopened once over again by an indirect method.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 769
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

114. The trade discounts cannot be deducted from the gross A
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. B

115. 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 C
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
D
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 E
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.
116. DOT has rightly asked for the licence fee on the notional
revenue of free calls, SMS, VAS minutes/data. When these amounts F
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. G
117. 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. H
770 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 118. 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 pre-paid 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
B
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.
C
119. 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
D 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.
E
120. 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
F
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.
121. It has also been submitted on behalf of the licensees that
offering discounts is frequently used to increase business in the long
G
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
H being part of the commercial strategy to enhance the business, it has
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 771
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

to be treated in the nature of expense and cannot be deducted from A
gross revenue.
122. Thus, we have no hesitation to reject the claim for various
forms of discounts, commissions, pre-paid vouchers, goodwill waiver
etc., raised on behalf of the licensees and set aside the finding of the
TDSAT to the extent it is contrary to the stand taken by DOT, and we B
hold that all discounts and commission etc. as discussed form part of
the gross revenue for the purpose of payment of licence fee.
In re: Gains arising out of Foreign Exchange Fluctuations:
123. The telecom service providers have transactions of
purchasing equipments or settling roaming charges etc. in foreign C
currency. The change in exchange rate vis-à-vis a foreign currency
from the date of transaction to the time of settlement may cause gain
or loss based upon the fluctuations in the exchange rate of rupee.
TDSAT in the 2007 judgment held that the fluctuations in the foreign
exchange rate have nothing to do with the licensed activities of the D
telecom service providers. The TDSAT in the impugned judgment and
order in 2015 has held that foreign exchange gains are of two types.
The reduction in liability towards payment for purchase of capital goods
from pre-paid and payment of charges or outroamers and secondly in
receipt from inroamer. In the first case, there is a decrease in cost,
which cannot be taken as revenue for the purpose of determining AGR. E
In case of reduction, payment of charges for outroaming the reduction
is allowed only on payment basis. Therefore, the difference between
accrual and paid basis cannot be taken as revenue for AGR calculation,
and in the second case, revenue is recorded on accrual basis. Any
charges till payment is made, are notional income, which cannot be taken F
as revenue for AGR basis. On actual payment since no discount is given
and the actual receipt is less, no licence fee should be charged if the
same is more. Thus, any gain or loss due to foreign exchange fluctuations
will have no bearing on the licence fee.
124. The DOT submits that the mandate of the definition of gross G
revenue has been ignored. The gain from foreign exchange fluctuation
is to be taken into the calculation of adjusted gross revenue, the income
is understood as an increase in economic benefits in the form of inflows
from the enhancement of assets or decreases in liability that result in
increase in equity. The definition of income covers both revenue and
gains. The gains from foreign exchange fluctuations should be added H
772 SUPREME COURT REPORTS [2019] 16 S.C.R.

A without any net off against the losses, and these should be on accrual
basis.
125. It is submitted on behalf of licensees that DOT is trying to
confuse the revenue with income. The foreign exchange fluctuation gain
is unrealised gain and is purely notional, and no flow of revenue takes
B place. AS-11 mandates the reporting of foreign currency in the balance-
sheet at the prevailing foreign exchange rate. The difference in
exchange variation between the transaction date and the year-end rates
is booked as an unrealised exchange of gain or loss. The transactions
denominated in foreign currency are recorded at the exchange rate
prevailing at the time of transaction and realised. As such, gain or loss
C
results when there is a change in the exchange rate between the
transaction date and date of settlement of items.
126. It is further submitted on behalf of the licensees that notional
gains are not inflows of cash and do not represent revenue. When there
is neither accrual nor receipt of income, no revenue can be said to have
D
resulted. A higher cost of an asset shown in the books on account of a
higher foreign exchange rate may be reduced to reflect the current
foreign exchange rate and does not result in any revenue received or
receivable by the appellant. If forex gain is on any item of expenditure,
then it should not enter calculation of gross revenue as expenses are
E not deductible while calculating gross revenue. It is further submitted
that Para 3(iii) of AS-9 expressly excludes the realised or unrealised
gains resulting from changes in foreign exchange rates and adjustment
arising on the transaction of foreign currency financial statements.
127. When we consider the rival submissions, it is apparent that
F there can be realised as well as unrealised foreign exchange gains/losses
which may differ depending on whether or not the transaction has been
completed by the end of the accounting period. The realised gains or
losses are the gains or losses that have been achieved. It means that
the customer has already settled the invoice before the close of the
accounting period. For example, to say a customer purchased items
G worth $1000 from a foreign seller based abroad, and the invoice is valued
at $1100 at the invoice rate. When customer settles the invoice after a
few days, say four weeks, after the date invoice was sent, and the
invoice is valued at $1200 when converted to US dollars at the current
exchange rate. It means that the seller will have a realised gain of $100.
H The foreign currency gain is recorded in the income section of the
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 773
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

income statement. Unrealised gain or loss results when the invoice is A
settled, but in case the customer fails to pay the invoice by the close
of the accounting period. The seller calculates the gains or losses that
would be earned if the customer paid the invoice at the end of the
accounting period. While preparing a financial statement, a transaction
will be recorded as an unrealised loss of $100 in case the value of the
B
invoice was $200. On the last date of the accounting period, the invoice
is valued at $100. Thus, the unrealised loss will be of $100. The
unrealised gain or loss is recorded in the balance-sheet. When preparing
the actual financial statement, companies are required to report the
transaction in the home currency to make it easy to understand all the
financial reports. It means that all transactions carried out in foreign C
currency must be converted to the home currency at the current
exchange rate when the business recognises the transaction. The
exchange difference which arises on reporting the mandatory items at
the rate different from the ones at which they are recorded initially,
must be recognised rate as an income or an expense. Thus, gain from
D
foreign exchange fluctuation is to be taken in the calculation of AGR,
and that is the actual revenue and cannot be ignored.
128. 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,
E
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.
F
129. 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. G
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 H
774 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 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
B 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.
C
In re: Monetary Gains on Sale of Shares:
130. It is submitted on behalf of the Tata Teleservices Ltd. and
other licensees that gains from sale of shares should not be included in
the inclusive definition of gross revenue. The gains on the sale of capital
assets and receipt from the sale of scrap. The issue has arisen when
D
an asset/scrap is sold for more than its book value, then the difference
between net sale proceeds and book value is the amount of gain on
sale of capital assets. Whether it has to form part of the gross revenue?
The tribunal has held that capital gains are of two types. (i) Gain over
and over the gross book value (cost) of the assets, that is when sale
E proceeds are more than the original purchase cost of the assets; and
(ii) gain over and above the net book value, i.e. when the sale proceeds
are less than the initial purchase cost but more than the net worth of
the asset. The tribunal has held that the gain on sale of capital assets
as per the first case, i.e., when the increase is over and above the book
value of the asset, it will form part of calculation of gross revenue.
F
131. 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,
G
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
H statement and also closing statement at the end of the year. What is
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 775
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

gain over and above the book value in the year in question, has to be A
taken into consideration towards gross revenue received. Submission
to the contrary raised on behalf of the licensees cannot be accepted.
We are not able 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
B
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. C
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. For what purpose and
head the income tax would be leviable, is not the question for our
D
consideration.
132. The submission raised that the sale of shares is not an
ordinary business activity, as provided in Para 4.1 of AS-9. Even Para
3(i) of AS-9 which excludes from the ambit of ‘revenue’ any realised
or unrealised gains resulting from disposal of non-current assets, i.e.
E
appreciation in the value of fixed assets. 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 F
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.
In re: Insurance claim in respect of capital assets: G
133. Where an asset is destroyed, and the insurance claim is
received for more than its book value. The difference between the
insurance claim received and the book value is treated as revenue by
the DOT for computing AGR. The dispute was not raised initially by
the licensees, while the order in the year 2007 came to be passed. It H
776 SUPREME COURT REPORTS [2019] 16 S.C.R.

A has been raised after this Court has remitted the case to the TDSAT
in the year 2011. The TDSAT has held that if the asset destroyed is
replaced immediately and the claim received is more than the actual
cost of replacing the equipment, the difference would be taken as
income; and in a case where the asset destroyed is not replaced
immediately, the gain to the extent more than the gross book value is
B
considered as income. The asset has appreciated over time, then
insurance claim received more than the total cost, though being real
gain, is not treated as revenue for clause 19.1 of the licence agreement.
134. On behalf of DOT, it is submitted that the tribunal has erred
in making the classification of the revenue. In case the insurance claim
C
received is more than the book value, it is to be treated as revenue.
According to the definition in clause 19.1, the gross inflow of cash for
the current year, over and above the book value, is to be treated gross
revenue. There is no need to make any classification as to when an
asset is destroyed and replaced later on. The insurance claim received
D more than depreciated book value has to be recorded in the profit and
loss account under any other income, that too constitutes a gain,
therefore, it will form part of the gross revenue in the calculation without
netting off and on accrual basis. To say if the revenue to form part of
gross revenue will be treated only when the insurance claim received
E is more than the book value. Therefore, the excess amount received
over and above the book value shall be taken as revenue for calculation
of gross revenue. For the use of accounting, the gain from the insurance
claim, the bifurcation made by the contingencies, was uncalled for and
cannot be culled out from the definition of gross revenue, which was
to simplify the procedure of assessment of licence fee. What is the
F meaning to be given to the word ‘immediately’ would differ from case
to case and determination of licence fee. The cost of replacement also
depends upon various factors. An old asset may be replaced by a brand
new one of the higher prices. For an accounting of gain from the
insurance claim, the methodology classification adopted by DOT is not
G found to be proper and is not in tune with the definition of gross
revenue.
135. It is submitted on behalf of the licensees that the amount
received towards insurance claim is for indemnification towards loss
of capital asset to compensate for the loss. The decision in Vania Silk
H Mills v. C.I.T. Ahmedabad, (supra) has been pressed into service
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 777
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

wherein it has been held that while paying for the loss, the insurance A
company compensates for the loss. The insurance claim is not the value
of the damage to property but only takes into consideration the amount
required to restore it to its original condition. Insurance contracts are
for indemnification. Therefore, it is submitted that the claims are not
as revenue.
B
136. 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 C
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.
In re: Amount of negative balance of pre-paid customer:
D
137. The negative balance occurs when a pre-paid customer
exhausts the available talk-time. TSPs as a matter of policy, sometimes
provides the customer with a small amount of loan talk-time as it may
deem fit, say of the value of Rs.10 or Rs.20. The utilisation of this talk-
time results in negative balance in the account of the pre-paid customer.
The balance is recovered from the subsequent re-charge made by the E
customer. In case where the customer fails to re-charge the fresh top-
up amount, the balance remains negative in the pre-paid account of the
customer. The pre-paid vouchers are sold for a price for which the
customer gets a fixed duration of talk-time/usage of the service. When
it is exhausted, and long talk-time is used, it results in a negative balance. F
The TDSAT has held that the negative balance cannot be taken into
account for computation of gross revenue as it is notional revenue, which
is neither billed nor received. It is not due to the fault of the licensee,
and the licensee does not gain anything from such usage beyond the
permitted duration for the amount received by it.
G
138. The case set up by DOT is that the negative balance is
communicated to the customer and also shown in the account. It is billed
on accrual basis and becomes part of gross revenue. In case it is not
realised, the same has the effect of bad debt, which is not allowed as
a deduction as per the definition of gross revenue. In case it is not
counted towards the gross revenue, it may encourage the licensee to H
778 SUPREME COURT REPORTS [2019] 16 S.C.R.

A give discounts increasing their gross revenue by such incentive and not
paying the licence fee to the public exchequer.
139. 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
B 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
C to align with the meaning of gross revenue in factual aspects of the
case and is set aside.
In re: Reimbursement of the infrastructure operating
expenses
D 140. The telecom service provider needs infrastructure like towers
to operate. To achieve economies of scale, two or more companies may
share one such passive infrastructure.
141. The licensees have submitted that setting up of passive
infrastructure like towers is not an activity which requires licence. The
E tower structure is sometimes erected by independent parties and is
offered to service providers on rent. Similar activity, when carried out
by a service provider, should not be treated as part of licensed activity.
Therefore, the revenue earned by licensee from rent/leasing out passive
infrastructure should not form part of adjusted gross revenue. It is also
submitted that renting/leasing of dark fibre towers etc. is carried out
F by IP-1 operators. These operators do not require any licence. It is a
non-licensed activity and should be out of the purview of adjusted gross
revenue.
142. The TRAI recommended that renting and leasing of the
passive infrastructures by service providers is a regular telecom activity
G and should, therefore, be part of AGR.
143. The TDSAT has observed that in case A has one tower at
a particular building, the same tower can be permitted to be used by
B. B would pay rent to A for the use of this tower. In case B pays
Rs.100 as rent to A, A will have to incur operating expenses for keeping
H the equipment in the tower, functional, which may inter alia, require
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 779
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

diesel generator. If monthly expenses for such operating expenses is A
Rs.10, then A and B would divide it in equal proportions. Thus, Rs.5
paid by B to A would be a revenue for A (Airtel). The TDSAT has
deducted Rs.5 from the gross revenue on a notional logic that the rent
of Rs.100 should be treated as rent of Rs.95 plus Rs.5 towards
reimbursement of expenditure. Thus, according to TDSAT, usage of
B
facility like rent has to be included in the gross revenue, and
reimbursement of spending should not be included in the gross revenue
provided it is shown separately in the invoice and not shown in the profit
and loss account as revenue.
144. The stand of DOT is that the interpretation is expressly
contrary to clause 19.1, which categorically includes “revenue from C
permissible sharing infrastructure”. The definition of gross revenue does
not permit differentiation between the reimbursement of expenses and
rent for the usage of the facility. By the interpretation of TDSAT,
accounting jugglery would take place, and the licensee will try to derive
maximum reimbursement of infrastructure operating expenses under the D
category of “reimbursement of expenditure” rather than under the “rent
category”. The company may form cartel and put up a common
expenditure in the type of reimbursement of the cost it would give a
chance for netting off the expenditure against revenue, which is
prohibited in clause 19.1.
E
145. 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 F
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 G
set aside.
In re: Waiver of late fee
146.Late fee is a penalty charged by the licensee in case
customer fails to pay the bill within the due date. Sometime late fee is
waived off by the licensee as a goodwill gesture at the time of payment. H
780 SUPREME COURT REPORTS [2019] 16 S.C.R.

A The submission raised on behalf of the licensee is that the licence fee
should be payable on the realised revenue. What has not been realised,
cannot form part of revenue.
147. The TDSAT in the order passed in 2007 held that the
amount of waiver of late fee has to be excluded from the gross revenue.
B The recommendation to the contrary made to the TRAI was set aside.
The TDSAT in the impugned order passed in 2015 has held that the
late fee is a penalty and the penalty that has been waived off, cannot
be added to the revenue. In the first place, penalty cannot be said to
be revenue, and if the penalty which is waived off, is added to revenue,
it would be a case of notional income being subjected to charge.
C
148. DOT submits that if the operator bills the late fee, it would
be taken as part of gross revenue, whether it is realised or not.
149. In case the late fee is attracted, it has to be counted towards
gross revenue without setting off, and if the operator waives it off, it
D has the same effect of discount being given to the customer which
cannot be allowed as no deduction (net off) is allowed under clause
19.1. When once the late fee amount is billed and the amount is not
paid within the due date, and the late fee is attracted, merely non-
realisation of the same for any reason, cannot be excluded from the
part of gross revenue as per its definition. Gross revenue has to be
E taken whether it is received or not, and netting off is not allowed under
clause 19.1. Once the amount has been billed, it is for the licensee to
realise it. There cannot be any justification for excluding late fee from
the gross revenue. In case money is lost by the service provider, the
same losses cannot be excluded from the AGR for the determination
F of licence fee.
150. Late free 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
G not sustainable and is set aside.
In re: Gains from roaming charges and PSTN pass-through
charges
151. Roaming charges apply when the customer leaves the home
network area and roams into the network or coverage area of another
H service area. Pass-through charges are charges paid by the licensee
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 781
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

to the licensor for allowing their subscribers’ calls to be carried on their A
networks. Clause 19.2 of the licence agreement provides for certain
deductions of roaming charges and PSTN pass-through charges from
gross revenue on actually paid basis. The TDSAT considered grievance
on behalf of the licensees that many a time it happens that the licensee
to whom such charges to be paid, happens to be the same company. It
B
is stated officers of the respondent do not allow deduction of such
charges on the ground that there is no such actual payment as the
company making as well as receiving the payment is the same. But
the revenue is counted under both the licences to compute the gross
revenue, and the tribunal has observed that irrespective of the company
being the same, pass-through charges shall be allowed to be deducted C
as soon as the same are accounted as revenue under the different
licence held by the company.
152. DOT submits that merely because one company has a
licence of more than one circle, there will not be common accounts of
that company. The licence fee is realised as per the separate account. D
In case both the licences are different, accounts are different, and
payment of licence fee for each circle is different, Idea (Delhi Circle
would pay to Idea (Bombay Circle) on actual basis as against on accrual
basis, becomes revenue in the accounts of Idea (Bombay Circle).
153. In this regard, the definition is apparent as to what deduction E
has to be made from gross revenue. Thus, it is more or less a problem
of particular calculation. How calculation is to be made?
154. Clause 19.2 makes it clear that detailed call charges paid
to other eligible telecommunication service providers within India shall
be excluded from gross revenue. Similarly, roaming revenues passed F
on to other eligible/ineligible service providers are also excluded. In that
case, they must be actually passed over to the licensees in different
service areas. Only then it can be excluded from gross revenue and
not otherwise.
155. Revenue from operating FCC 214 licence, USA, the G
problem arises in the case of Bharti BILGO which is an isolated case
where it has a branch of Bharti Airtel in U.S. The submission of Bharti
Airtel is that since the income generated by the branch is a separate
income, it cannot be included in the income of Bharti Airtel in India. In
the year 2007, the TDSAT has observed that the VSNL had the
monopoly for ILD service before 1.4.2002. VSNL ceased to be a H
782 SUPREME COURT REPORTS [2019] 16 S.C.R.

A Government-owned company. The old ILD licence permitted VSNL
to carry both the activities, i.e., ILD service as well as TV uplinking.
Under the new regime, a separate licence had to be obtained. Licence
for TV uplinking service was obtained from the Ministry of Information
and Broadcasting Ltd. while DOT issued the ILD licence. TV uplinking
service cannot be rendered in the ILD licence due to the definition of
B
the word service in that licence. Since for TV uplinking facility, a
separate licence is required, such service could not be rendered under
an ILD licence. The ILD licence issued by DOT carries a revenue-
sharing scheme out of the gross revenue, which is not there in case of
TV uplinking licence issued by the Ministry of Information &
C Broadcasting. The said licence is practically free. Therefore, other
service providers of TV uplinking service do not have to pay almost
any licence fee. The TDSAT had rejected the recommendation of TRAI
according to which revenue from TV uplinking and Internet service is
to form part of AGR as it was held to be a form of AGR. It was held
by TDSAT that revenue from these services is to be excluded from
D
AGR.
156. In the impugned order, the tribunal has held that the revenue
from operating FCC 214 licence arises not from the licence granted
by DOT but by FCC. Hence, this inflow cannot be taken as part of
AGR unless the DOT can establish that there is technical, managerial
E and financial interconnection interlacing and synergy between company’s
operations in the USA and India the gross revenue from the services
of 214 FCC licence is reflected in the company’s accounts.
157. The stand of the DOT is that if this is permitted, every TSP/
licensee in India would have branch offices in other parts of the world
F and would treat majority of the international income of the licensee as
having been generated in the branch office outside the country and
would not take it into account from calculation of gross revenue for
payment of licence fee. It could not be said that the situation would
not affect the profitability of the company since the revenue is generated
G in the branch office of the company but will affect the calculation of
gross revenue as only a repatriated amount would be taken for
calculation. Relying on the observations made by this Court in Union
of India v. AUSPI (2011) at Para 49 in which this Court has held that
in such a scenario, the business can be transferred to a separate legal
entity to avoid the branch office’s revenue to be clubbed with the main
H office. The income of the subsidiaries has to be included in the case of
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 783
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

Bharti Airtel, it has separate subsidiaries, which are separate legal A
entities in and outside India, and the income generated from such
subsidiaries are not considered or included while computing the adjusted
gross revenue of Bharti Airtel. Since BILGO is a branch of Bharti Airtel
and not a separate legal entity, because of the previous decision of 2011,
the business for which no licence is required, should be transferred to
B
a separate legal entity to avoid computation of gross revenue, if not
due it has to be part of gross revenue.
158. In our opinion, 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 C
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 we find no merit in the submission.
159. The finding recorded by the TDSAT, to the extent it is
contrary to the DOT, based upon certain conditions, is set aside. D

In re: Non-refundable Deposits
160. It is permissible for the licensee to accept deposits from its
customers, which at times are non-refundable but are used to provide
discounts on the bills raised. Concerning non-refundable deposits, the E
claim was not pressed by the learned counsel appearing on behalf of
DOT before the tribunal. However, we find that the concession given
by the learned counsel on behalf of DOT concerning non-refundable
deposits is palpably incorrect.
161. We had put learned counsel for the parties at notice during F
the hearing as to the correctness of the finding recorded by the tribunal
based on the concession, which was prima facie incorrect. We have
heard learned counsel for the parties on the issue whether non-
refundable deposit forms part of the revenue of the licensee.
162. Appendix II to Annexure-II of the licence agreement: Item
G
No.5, in Section D of the format, is an entry concerning non-refundable
deposits from subscribers. It has to be included as per the format in
the statement of the gross revenue. 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 H
784 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 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
B
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
C concession of the counsel, it has to be legally tested. In case any
admission is made, its correctness has to be examined.
In re: Licence fee demand where spectrum is not granted
163. Concerning demand of licence fee in the circle where the
D licensee was not granted spectrum: When the spectrum itself has not
been issued, licence activity has not come into play, no revenue is
generated. 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
E 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
F an unreasonable and unconscionable bargain to pass on such a liability.
We agree with finding recorded by TDSAT in the case of Videocon &
S. Tel.
In re: Income from interest and dividend
164. Argument has also been raised concerning interest income
G
and dividend income. Since these items are expressly included in the
definition of gross revenue in clause 19.1. 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
H determination of licence fee.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 785
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

In re: Bad-debts written off A
165. 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, has observed as under:
“Licensees submit that if a bad debt, that is written off is later B
on recovered, it is required to be reported to the DoT, this,
according to the licensees, that bad debts written off may be
allowed as deductions from revenue but as and when those are
recovered subsequently those should be added on to revenue.
The submission is not acceptable but it needs to be clarified that C
when any bad debt written of is recovered finally, it may not be
charged to license fee again as that would result in double
charging of license fee on the same revenue.”
166. TDSAT has not accepted the submission of the licensees.
However, at the same time, it has safeguarded the interest of the D
licensees. In case it is realised later on, it may not be charged again. It
should be charged only once. We find the finding to be appropriate.
No case for interference in the findings recorded by the TDSAT is
made out.
In re: Liability written off E
167. The TDSAT has observed as under:
“Take the example of a company that makes a provision for
retirement benefits for the amount. For income tax, it will be
considered as an expense, but no discount from income will be
allowed for the sum for determining the license fee. If such a F
liability is written off on a future date and shown accordingly in
the profit and loss statement it surely cannot be brought to charge
for a second time for computing licence fee.”
No objection has been raised on behalf of DOT to the said
findings. G
168. DOT submits that the reasoning is correct. However,
TDSAT could not have undertaken this exercise head-wise. It is
presented on behalf of the licensees that notional revenue cannot be
included in the revenue of the company based on provisional liability
being finalised by actual liability. The amount kept as provisional liability H
786 SUPREME COURT REPORTS [2019] 16 S.C.R.

A cannot be treated as income. In our opinion, TDSAT has 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.
B 169. In Rajputana Trading Co. Ltd. v. Commissioner of
Income Tax, West Bengal-I, (1982) 2 SCC 775, it has been observed
that once liability is written off, it has to be added as income from the
business under section 10(2A) and such income should be given some
local habitation or name.
C
170. Hence, we hold that it is to be treated as an expense, and
discount cannot be allowed for determining the licence fee.

In re: Inter-corporate loan

171. Certain licensees have raised the loan being holding
D
companies for the subsidiaries from various banks and financial
institutions. In turn, this amount is given to the subsidiaries for their day-
to-day operations. On this amount, the subsidiaries pay interest at the
SBI Prime Lending Rates (PLR) every quarter, which in turn is paid
by the holding company to the banks/financial institutions. DOT seeks
E to include the interest received from the subsidiaries companies in the
revenue of the holding company. The TDSAT has included the income
from interest on inter-corporate loan as part of gross revenue. It is
submitted on behalf of licensees that as the holding company only
performs the function for the subsidiary company and the interest
F amount is only reimbursement of the amount paid to the bank, it cannot
be included in the gross revenue. As such, it does not form part of gross
revenue.

172. The submission has no legs to stand, and it is apparent from
the definition of gross revenue in clause 19.1 that income from interest
G is to be included in the gross revenue. Thus, the submission is baseless.
By the fact that the holding company gives loan to the subsidiary
company and recovers interest from subsidiaries, is good enough to
make it a part of gross revenue.
173. Thus, interest income from inter-corporate loan has to be
H included in the gross revenue for working out the licence fee.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 787
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

In re: Revenue under IP-1 Registration A
174. Whether it can be claimed/clubbed under revenue under
CUG licence? 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 B
registration under the CUG licence.
In re: Income from management consultancy services:
175. When we consider the definition of gross revenue, 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 C
cannot be excluded. Submission to the contrary cannot be accepted and
is as a result of this rejected.
176. 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. D
In re: Res Judicata
177. Coming to the submission raised on behalf of DOT that the
findings in Union of India v. AUSPI (2011) (supra) operate as res
judicata with respect to items dealt with and act as constructive res
E
judicata with respect to the questions that were not raised in the petition
which were filed in Petition No.7/2003 and Petition No.82/2005. The
challenge was made to most items on the ground; they could not be
included in the definition of gross revenue; same did not form part of
the licensed activity. However, this Court has repelled this submission
and has included the such items in the definition of gross revenue. It is F
clear that once this Court has held that the income which covered under
the definition of gross revenue and were claimed to be excluded earlier
on the ground that they could not form part of gross revenue, the
definition so including them was ultra vires and illegal/invalid. The same
heads are now sought to be excluded by taking the shelter that they do
G
not form part of revenue under AS-9. Though they form part of gross
revenue under Clause 19.1. There is no scope left for this exercise.
Though, we have examined every question raised on merit again as it
was submitted that this Court had left the question open as to proper
interpretation. This Court has held that TRAI and the TDSAT had no
jurisdiction to decide on the validity of the definition of gross revenue H
788 SUPREME COURT REPORTS [2019] 16 S.C.R.

A and adjusted gross revenue in the licence agreement and to exclude
items of revenue, which were included in the definition of gross revenue
in the licence agreement, whether they are from non-licencing activities.
178. Considering whether the licensee can challenge the
computation of adjusted gross revenue and if so, at what stage and on
B what ground, this Court has observed that one such dispute can be that
computation of adjusted gross revenue made by the licensor and the
demand raised based on such computation is not following the licence
agreement. The dispute can be raised after the licence agreement has
been entered into at the appropriate stage, when the demand is raised
by the licensor/licensee. This Court observed if the dispute is raised,
C TDSAT will have to go into the facts and material to decide demand is
as per licence, in particular, the definition of adjusted gross revenue in
the licence agreement. It can also interpret the terms and conditions
of the licence agreement, as the tribunal has not gone into the facts
and material relating to the demand of a particular licensee. It was
D further observed that the tribunal may go into the facts and material
based on which demand is raised to make the computation. Thus, the
scope of the latter observations is not so wide to take out certain items,
though included explicitly in the definition of gross revenue and to hold
that they do not to form part of it. Income from licensing and non-
licensing activities are in the ambit of gross revenue had been
E determined conclusively in 2011 judgment. Only facts and material can
be seen for computation.
179. It was submitted that the computation involves the process
of that of computing, numbering, reckoning, and distributing. The
account of estimation by rule of law is distinguished from the arbitrary
F construction of the parties. The reliance has been placed on the
decision in Hindustan Machines Ltd. v. Union of India, 1985 (2)
SCC 197.
180. Reliance has also been placed on Lohia Machines Ltd. &
Anr. v. Union of India & Ors., (1985) 2 SCC 197 in which for income
G tax, the term computation has been considered. Wharton Law Dictionary
reference has also made as to the definition of computation based upon
Lohia Machines Ltd. (supra). It is a legal process of computing
inclusion and exclusion of items, which may otherwise be regarded as
forming part of the capital employed, as interpreted by this Court in
Lohia Machines Ltd. (supra) in which following observations have been
H made:
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 789
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

“18. It is because the expression “capital employed” has a A
variable meaning that it has been enacted by the legislature that,
to calculate the relief allowable under Section 80-J sub-section
(1), the statutory percentage must be applied to the “capital
employed” as computed in the prescribed manner. How the
“capital employed” shall be computed is left to be prescribed by B
the Central Board of Revenue by making Rule or Rules under
Section 295 of the Income Tax Act, 1961. The process of
computation would involve both inclusion and exclusion of items,
which may possibly be regarded as falling within the expression
“capital employed”. The Central Board of Revenue may include
some items and exclude some others while prescribing the C
manner of computation of the “capital employed”. This is the
sense in which the word “computed” has been consistently used
by the legislature while enacting legislation of this kind. Turning
to the earliest legislation where the word “computed” has been
used in relation to the “capital employed”, we find that in the D
Excess Profits Tax Act, 1940 for determining the standard profits,
the statutory percentage was required to be applied to the average
amount of capital employed as computed in accordance with the
Second Schedule and the Second Schedule provided for inclusion
of certain items and exclusion of certain others including borrowed
moneys and debts. The legislature clearly, in this statute, regarded E
exclusion of borrowed moneys and debts as implicit in the process
of computation of the “capital employed” or to put it differently,
according to legislative usage, computation of the “capital
employed” could legitimately involve as part of the process,
exclusion of items such as borrowed moneys and debts. So also F
in the Business Profits Tax Act, 1941 and the Super Tax Profits
Tax Act, 1953, the word “computed” was used in the same sense
as involving in the process of computation of the “capital
employed”, exclusion of borrowed moneys and debts. Similarly,
in the Companies (Profits) Surtax Act, 1964 also, the word
G
“computed” has been used in the same sense. Of course it may
be pointed out that in this statute the word “computed” has been
used in relation to the “capital of the company” and not in relation
to the “capital employed” but that would make no difference,
because what we are concerned with here is the sense in which
the word “computed” has been used and whether it involves the H
790 SUPREME COURT REPORTS [2019] 16 S.C.R.

A process of exclusion as well as inclusion and on that point, the
Act analogically throws considerable light. The statutory
deduction which must be made from the chargeable profits for
the purpose of determining the charge of Surtax under this statute
is defined to mean “an amount equivalent to ten percent of the
B capital of the company as computed in accordance with the
provisions of the Second Schedule” and the Second Schedule
after its amendment by Finance Act 66 of 1976 does not provide
for inclusion of borrowed moneys and debts in computation of
the capital of the company though it provides for inclusion of the
paid-up share capital and reserves. It will thus be seen that there
C is legislative history behind the use of the word “computed” in
relation to the “capital employed” and it has been legislatively
recognised as involving, as part of the process of computation,
both inclusion as well as exclusion of items which may otherwise
be regarded as forming part of the “capital employed.” It is in
D the context of this background and not by way of a virgin attempt
that the word “computed” has been used by the legislature in
relation to the “capital employed” in Section 80-J sub-section (1).
19. It may be noted that even in the Income Tax Act, 1961 the
word “computed” has been consistently used in relation to
E “income” in the sense of involving both inclusion and exclusion
of items of income. Section 2 clause (45) defines “total income”
to mean the total amount of income referred to in Section 5
“computed in the manner laid down in this Act”. Now, if we look
at the provisions in the Income Tax Act, 1961, which lay down
the manner of computation of the total income, it would be clear
F that the process of computation of total income involves both
inclusion and exclusion of various items of income. Section 10
provides that in computing the total income of a previous year
of any person, any income falling within any of the clauses of
that section shall not be included in the total income, though such
G income which is required to be excluded is undoubtedly income
and therefore part of total income according to the plain natural
connotation of that expression. But it is required to be excluded
in determining the charge of tax because “total income” is defined
as total amount of income, “computed in the manner laid down
in the Act”. The same position obtains also in regard to Section
H 11 and it excludes certain categories of income in computation
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 791
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

of the total income. Then, we may refer to Section 29 which A
provides that the income from profits and gains of business and
profession shall be computed in accordance with the provisions
contained in Sections 30 to 43-A. These sections provide for
inclusion and exclusion of various items in computing the total
income. Sections 80-A to 80-VV also provide for deductions to
B
be made in computing the total income and under sections such
as 80-HH, 80-JJ and 80-O, even an item which indisputably forms
part of income of an assessee, is required to be excluded in
computing the total income chargeable to tax. No one has ever
argued and indeed it is impossible even to conceive of such an
argument, that when Section 2 clause (45) defines total income C
as the total amount of income computed in accordance with the
provisions of the Act, what is indubitably part of income cannot
be excluded in the computation. However, the argument of Mr.
Palkhivala was that in the case of definition of “total income”
the exclusion of items of income in the process of computation
D
is provided for by the legislature itself and is not purported to be
done by any rule-making authority. The legislature, stated Mr.
Palkhivala, can cut down the width and amplitude of the
expression “total amount of income” by expressly providing that
particular item or items shall be excluded in the computation of
the total amount of income, but the Rule-making authority cannot E
do so, because by doing so, it would be derogating from the
provisions of the statute. Now we have already pointed out that
since the expression “capital employed” has a variable meaning
which in a given case may or may not include borrowed moneys,
the Central Board of Revenue, could, in exercise of its rule-
F
making power, exclude borrowed moneys in computation of the
“capital employed” and in doing so, it would not in any way be
acting contrary to the mandate of the statute. But the point which
we wish to emphasise here, while referring to the definition of
“total income” in Section 2 clause (45), is that the word
“computed” have been used by the legislature as comprehending G
within its scope not only inclusion but also exclusion of certain
items of income which are admittedly and without doubt, part of
the income of the assessee. We find that even in some of the
sub-sections of Section 80-J the word “computed” has been used
in the same sense as involving both inclusion and exclusion. The
H
792 SUPREME COURT REPORTS [2019] 16 S.C.R.

A second proviso to sub-section (4) of Section 80-J provides that
“where any building or any part thereof previously used for any
purpose is transferred to the business of the industrial undertaking,
the value of the building or part so transferred shall not be taken
into account in computing the ‘capital employed’ in the industrial
undertaking”. So also Explanation 2 to the same sub-section
B
enacts in so many terms that in a case falling within its scope
and ambit, “the total value of the machinery or plant or part so
transferred shall not be taken into account in computing the
‘capital employed’ in the industrial undertaking”. Then again, the
Explanation to sub-section (6) of Section 80-J makes a similar
C provision for exclusion of “total value of the building machinery
or plant or part so transferred” in computing the “capital
employed” in the case of business of a hotel. It will thus be seen
that, even according to these provisions in Section 80-J, the
process of computation of the “capital employed” can legitimately
exclude item or items which are plainly and indubitably part of
D
the “capital employed”. Of course the exclusion enacted by these
provisions is made by the legislature and not by the Rule-making
authority, but again, if we may emphasise, the point is not
whether an exclusion is made by the legislature or by the Rule-
making authority but whether such exclusion is implicit in the
E process of computation so as to be comprised in it. And on this
point not only the provisions of the Excess Profits Tax Act, 1940,
the Business Profits Tax Act, 1947, the Super Profits Tax Act,
1963 and the Companies (Profits) Surtax Act, 1964 but also the
various provisions of the Income Tax Act, 1961 referred to by
us, clearly indicate that the word “computed” has been used by
F
the legislature in sub-section (1) of Section 80-J as involving not
only inclusion but also exclusion of items which may otherwise
be regarded as falling within the expression “capital employed”.
It is left by the legislature to the Central Board of Revenue as
rule-making authority to prescribe the manner in which the “capital
G employed” shall be computed and in so prescribing, the Central
Board of Revenue may include or exclude items which may be
regarded as forming part of the “capital employed”.”
181. This Court has considered the matter given the provisions
contained in section 80J of the Income Tax Act and has observed that
H capital employed has variable meanings. It has been legislatively
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 793
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

recognised both inclusion as well as exclusion of the items, which may A
otherwise be regarded as forming part of the capital employed. Thus,
the expression computation has not been used in the 2011 decision to
include those very items from the purview of the definition of gross
revenue, which have been held to be covered by this Court to be part
of gross revenue. According to the 2011 judgment, whether the demand
B
is in terms and conditions of the licence agreement and, in particular,
the definition of adjusted gross revenue, could have been seen. The
TDSAT could also view the facts and material based on which demand
has been raised, but it was not permissible to exclude the items which
are included in the definition of gross revenue, as is sought to be done.
Be that as it may. We have examined all the submissions which have C
been raised on merits again, uninfluenced by the plea of res judicata/
constructive res judicata, and we have found no merit in the submissions
which have been raised. Thus, we refrain from burdening the judgment
with the decisions cited at the Bar concerning res judicata and
constructive res judicata.
D
In re: Levy of interest, penalty, and interest on penalty:
182. Levy of licence fee is provided in clause 20.2. In case of
any delay in payment of licence fee beyond the stipulated period would
attract penalty at the rate, which would be 2% above the Prime Lending
Rate (PLR) of the State Bank of India. As per clauses 20.5 and 20.8, E
if the licensee does not pay the demand, consequences would follow.
The clauses are extracted hereunder:
“20.5 Any delay in payment of Licence Fee payable or any other
dues payable under the LICENCE beyond the stipulated period
will attract interest at a rate which will be 2% above the Prime F
Lending Rate (PLR) of State Bank of India existing as on the
beginning of the Financial Year (namely 1st April) in respect of
the licence fees pertaining to the said Financial Year. The interest
shall be compounded monthly and a part of the month shall be
reckoned as a full month for the purposes of calculation of
interest. A month shall be reckoned as an English calendar month. G
20.8 In case, the total amount paid as quarterly Licence Fee
for the 4 (four) quarters of the financial year, falls short by more
than 10% of the payable Licence Fee, it shall attract a penalty
of 50% of the entire amount of short payment. However, if such
short payment is made good within 60 days from the last day of H
794 SUPREME COURT REPORTS [2019] 16 S.C.R.

A the financial year, no penalty shall be imposed. The amount of
penalty shall be payable within 15 days of the date of signing
the audit report on the annual accounts, failing which interest shall
be further charged per terms of Condition 20.5.”
183. It is apparent that in case licence fee is not paid as per
B clause 20.2, the agreement is that the outstanding will attract interest
at the rate of 2% above the Prime Lending Rate of the State Bank of
India existing as on the date of the beginning of the financial year, that
is first of April. The interest shall be compounded monthly. Under clause
20.8, the penalty is to be paid in case the total amount paid as quarterly
licence fee falls short by more than 10% of the payable licence fee, it
C
shall attract a penalty of 50% of the entire amount of short-payment.
A grace period of 60 days is granted, otherwise, it will carry the interest.
The amount of penalty shall be payable within 15 days of the date of
signing the audit report, failing which interest shall be charged as per
terms of clause 20.5.
D
184. Whether interest and penalty have to be levied or not is to
be gone into on the facts and circumstances of the case.
185. The TDSAT has held that it would not be appropriate to
levy interest as well as the penalty. In case interest has to be levied, it
has to be collected at a nominal amount. The TDSAT has not specified
E the same.
186. DOT submits that as per the terms and conditions of the
agreement, interest has to be paid for delayed payment. The contract
has been entered into, and the rate of interest has been fixed therein.
It is not for the court to modify the same and penalty clause is also
F attracted considering the nature of the objections raised as to the very
definition of gross revenue whereas parties have fully understood the
meaning of gross revenue and the regime of revenue sharing was highly
beneficial, and they have earned revenue and failed to share the same
as compared to the fixed fee regime. Thus, it was incumbent upon the
G licensees to make payment of interest and penalty as agreed.
187. The licensees submit that when once this Court passes an
order in the present appeals, it will have to be given effect to as to
which items can be included or excluded in the gross revenue. It is
only if the demand is not then paid within the stipulated period; the
H question of payment of interest would arise. It is further submitted that
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 795
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

the penalty is for failure to pay the demand within the specified period. A
Penalty requires mens rea, contumacious conduct, or deliberate
disregard of the person’s statutory liability. Parties are in litigation since
2003. TDSAT decided on the validity of definition in the year 2007.
After that, this Court passed judgment in 2011 and remitted the case
to TDSAT. TDSAT has again decided concerning certain items in favour
B
of the licensees, and throughout litigation, demands were stayed by this
Court/TDSAT. Disputes are bona fide disputes. The licensees have paid
about 80% of the demand raised by DOT, and the instant dispute
pertains only to 20% of the demand on which stay was in operation.
Under section 74 of the Indian Contract Act, compensation must be
only reasonable compensation. DOT has also levied penalty and interest C
on penalty. In the absence of deliberate refusal to pay, no penal
consequences like penalty can be imposed. It is also submitted that a
fiscal contract/agreement is to be construed strictly, and if there is a
doubt, the same needs to be interpreted in favour of the assessee. Non-
payment was neither deliberate nor under defiance of any law. The
D
licensees have placed reliance on:
A. Hindustan Steel Ltd. v. State of Orissa, 1969 (2) SCC 627,
in which following observations are made:
“8. Under the Act penalty may be imposed for failure to register
as a dealer — Section 9(1) read with Section 25(1)(a) of the E
Act. But the liability to pay penalty does not arise merely upon
proof of default in registering as a dealer. An order imposing
penalty for failure to carry out a statutory obligation is the result
of a quasi-criminal proceeding, and penalty will not ordinarily be
imposed unless the party obliged either acted deliberately in F
defiance of law or was guilty of conduct contumacious or
dishonest, or acted in conscious disregard of its obligation. Penalty
will not also be imposed merely because it is lawful to do so.
Whether penalty should be imposed for failure to perform a
statutory obligation is a matter of discretion of the authority to
G
be exercised judicially and on a consideration of all the relevant
circumstances. Even if a minimum penalty is prescribed, the
authority competent to impose the penalty will be justified in
refusing to impose penalty, when there is a technical or venial
breach of the provisions of the Act or where the breach flows
from a bona fide belief that the offender is not liable to act in H
796 SUPREME COURT REPORTS [2019] 16 S.C.R.

A the manner prescribed by the statute. Those in charge of the
affairs of the Company in failing to register the Company as a
dealer acted in the honest and genuine belief that the Company
was not a dealer. Granting that they erred, no case for imposing
penalty was made out.”
B B. Akbar Badrudin Giwani v. Collector of Customs, 1990 (2)
SCC 203,
“60. In the present case, the Tribunal has itself specifically stated
that the appellant has acted on the basis of bona fide belief that
the goods were importable under OGL and that, therefore, the
C
appellant deserves lenient treatment. It is, therefore, to be
considered whether in the light of this specific finding of the
Customs, Excise & Gold (Control) Appellate Tribunal, the penalty
and fine in lieu of confiscation require to be set aside and quashed.
Moreover, the quantum of penalty and fine in lieu of confiscation
D are extremely harsh, excessive and unreasonable bearing in mind
the bona fides of the appellant, as specifically found by the
Appellate Tribunal.
61. We refer in this connection to the decision in Merck Spares
v. Collector of Central Excise & Customs, New Delhi, (1983)
E 13 ELT 1261 (CEGAT), Shama Engine Valves Ltd. v. Collector
of Customs, (1984) 13 ELT 533 (CEGAT), Bombay and
Madhusudan Gordhandas & Co. v. Collector of Customs,
Bombay (1987) 29 ELT 904, wherein it has been held that in
imposing penalty the requisite mens rea has to be established. It
F has also been observed in Hindustan Steel Ltd. v. State of
Orissa, (1969) 2 SCC 627, by this Court that: (SCR HN p. 753)
“The discretion to impose a penalty must be exercised
judicially. A penalty will ordinarily be imposed in cases where
the party acts deliberately in defiance of law, or is guilty of
G contumacious or dishonest conduct, or acts in conscious
disregard of its obligation; but not, in cases where there is a
technical or venial breach of the provisions of the Act or
where the breach flows from a bona fide belief that the
offender is not liable to act in the manner prescribed by the
H statute.”
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 797
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

62. In the instant case, even if it is assumed for argument’s sake A
that the stone slabs imported for home consumption are marble
still in view of the finding arrived at by the Appellate Tribunal
that the said product was imported on a bona fide belief that it
was not marble, the imposition of such a heavy fine is not at all
warranted and justifiable.”
B
(emphasis supplied)
C. Jaiprakash Industries Ltd. v. Commissioner of Central
Excise, Chandigarh, 2003 (1) SCC 67, para 8.
“8. In this case, there was a divergent view of the various High
Courts whether crushing of bigger stones or boulders into smaller C
pieces amounts to manufacture. In view of the divergent views
of the various High Courts, there was a bona fide doubt as to
whether or not such an activity amounted to manufacture. This
being the position, it cannot be said that merely because the
appellants did not take out a licence and did not pay the duty the D
provisions of Section 11-A got attracted. There is no evidence
or proof that the licence was not taken out and/or duty not paid
on account of any fraud, collusion, wilful misstatement or
suppression of fact. We, therefore, set aside the demand under
the show-cause notice dated 3-5-1993.”
E
(emphasis supplied)
D. In Tecumseh Products India Ltd. v. Commissioner of
Central Excise, Hyderabad, 2004 (6) SCC 30, it was held as under:
“7. But, insofar as the application of extended period of limitation
provided under Section 11-A is concerned, we do not think that F
the Tribunal is justified because it was not clear as to whether if
any part is used for the purpose of repairing a machinery would
amount to manufacture. In fact, the Tribunal on a detailed
analysis and after going into several processes carried out by the
appellant, came to the conclusion that the stators which were
G
used in the repairing of the compressors involved manufacturing
activity. This circumstance itself shows that there was bona fide
dispute between the parties in regard to the question whether
stators made ready for the purpose of use of compressors
involved any manufacturing activity or not. Therefore, to the
extent the authorities invoked Section 11-A of the Act and H
798 SUPREME COURT REPORTS [2019] 16 S.C.R.

A imposed penal interest and other penalties shall stand set aside
and the order made by the Tribunal stands modified to that
extent.”
(emphasis supplied)
E. In J. K. Synthetics Ltd. v. Commercial Taxes Officer, 1994
B
(4) SCC 276, following observation has been made:
“17. Let us look at the question from a slightly different angle.
Section 7(1) enjoins on every dealer that he shall furnish
prescribed returns for the prescribed period within the prescribed
time to the assessing authority. By the proviso the time can be
C
extended by not more than 15 days. The requirement of Section
7(1) is undoubtedly a statutory requirement. The prescribed return
must be accompanied by a receipt evidencing the deposit of full
amount of ‘tax due’ in the State Government on the basis of the
return. That is the requirement of Section 7(2). Section 7(2-A),
D no doubt, permits payment of tax at shorter intervals but the
ultimate requirement is deposit of the full amount of ‘tax due’
shown in the return. When Section 11-B(a) uses the expression
“tax payable under sub-sections (2) and (2-A) of Section 7”, that
must be understood in the context of the aforesaid expressions
employed in the two sub-sections. Therefore, the expression ‘tax
E
payable’ under the said two sub-sections is the full amount of
tax due and ‘tax due’ is that amount which becomes due ex
hypothesi on the turnover and taxable turnover “shown in or
based on the return”. The word ‘payable’ is a descriptive word,
which ordinarily means “that which must be paid or is due, or
F maybe paid” but its correct meaning can only be determined if
the context in which it is used is kept in view. The word has
been frequently understood to mean that which may, can or
should be paid and is held equivalent to ‘due’. Therefore, the
conjoint reading of Sections 7(1), (2) and (2-A) and 11-B of the
Act leaves no room for doubt that the expression ‘tax payable’
G
in Section 11-B can only mean the full amount of tax which
becomes due under sub-sections (2) and (2-A) of the Act when
assessed on the basis of the information regarding turnover and
taxable turnover furnished or shown in the return. Therefore, so
long as the assessee pays the tax which according to him is due
H on the basis of information supplied in the return filed by him,
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 799
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

there would be no default on his part to meet his statutory A
obligation under Section 7 of the Act and, therefore, it would be
difficult to hold that the ‘tax payable’ by him ‘is not paid’ to visit
him with the liability to pay interest under clause (a) of Section
11-B. It would be a different matter if the return is not approved
by the authority, but that is not the case here. It is difficult on
B
the plain language of the section to hold that the law envisages
the assessee to predicate the final assessment and expect him
to pay the tax on that basis to avoid the liability to pay interest.
That would be asking him to do the near impossible.”
(emphasis supplied)
C
F. Kailash Nath Associates v. Delhi Development Authority
& Anr., 2015 (4) SCC 136, paras 40 & 43
“40. From the above, it is clear that this Court held that Maula
Bux v. Union of India, (1969) 2 SCC 554, was not, on facts, a
case that related to earnest money. Consequently, the observation D
in Maula Bux that forfeiture of earnest money under a contract
if reasonable does not fall within Section 74, and would fall within
Section 74 only if earnest money is considered a penalty is not
on a matter that directly arose for decision in that case. The law
laid down by a Bench of five Judges in Fateh Chand v.
Balkishan Dass, (1964) 1 SCR 515, is that all stipulations E
naming amounts to be paid in case of breach would be covered
by Section 74. This is because Section 74 cuts across the rules
of the English common law by enacting a uniform principle that
would apply to all amounts to be paid in case of breach, whether
they are in the nature of penalty or otherwise. It must not be F
forgotten that as has been stated above, forfeiture of earnest
money on the facts in Fateh Chand case was conceded. In the
circumstances, it would therefore be correct to say that as
earnest money is an amount to be paid in case of breach of
contract and named in the contract as such, it would necessarily
be covered by Section 74.” G
(emphasis supplied)
G. Central Bank of India v. Ravindra & Ors., (2002) 1 SCC
367, paras 38, 55
“38. However “penal interest” has to be distinguished from H
800 SUPREME COURT REPORTS [2019] 16 S.C.R.

A “interest”. Penal interest is an extraordinary liability incurred by
a debtor on account of his being a wrongdoer by having
committed the wrong of not making the payment when it should
have been made, in favour of the person wronged and it is neither
related with nor limited to the damages suffered. Thus, while
liability to pay interest is founded on the doctrine of compensation,
B
penal interest is a penalty founded on the doctrine of penal action.
Penal interest can be charged only once for one period of default
and therefore cannot be permitted to be capitalised.
55. During the course of hearing it was brought to our notice
that in view of several usury laws and debt relief laws in force
C
in several States private moneylending has almost come to an
end and needy borrowers by and large depend on banking
institutions for financial facilities. Several unhealthy practices
having slowly penetrated into prevalence were pointed out.
Banking is an organised institution and most of the banks press
D into service long-running documents wherein the borrowers fill
in the blanks, at times without caring to read what has been
provided therein, and bind themselves by the stipulations
articulated by the best of legal brains. Borrowers other than those
belonging to the corporate sector, find themselves having
unwittingly fallen into a trap and rendered themselves liable and
E
obliged to pay interest the quantum whereof may at the end prove
to be ruinous. At times the interest charged and capitalised is
manifold than the amount actually advanced. Rule of damdupat
does not apply. Penal interest, service charges and other
overheads are debited in the account of the borrower and
F capitalised of which debits the borrower may not even be aware.
If the practice of charging interest on quarterly rests is upheld
and given a judicial recognition, unscrupulous banks may resort
to charging interest even on monthly rests and capitalising the
same. Statements of accounts supplied by banks to borrowers
many a times do not contain particulars or details of debit entries
G
and when written in hand are worse than medical prescriptions
putting to test the eyes and wits of the borrowers. Instances of
unscrupulous, unfair and unhealthy dealings can be multiplied
though they cannot be generalised. Suffice it to observe that such
issues shall have to be left open to be adjudicated upon in
H appropriate cases as and when actually arising for decision and
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 801
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

we cannot venture into laying down law on such issues as do A
not arise for determination before us. However, we propose to
place on record a few incidental observations, without which, we
feel, our answer will not be complete and that we do as under:
(1) Though interest can be capitalised on the analogy that
the interest falling due on the accrued date and B
remaining unpaid, partakes the character of amount
advanced on that date, yet penal interest, which is
charged by way of penalty for non-payment, cannot be
capitalised. Further interest i.e. interest on interest,
whether simple, compound or penal, cannot be claimed
on the amount of penal interest. Penal interest cannot C
be capitalised. It will be opposed to public policy.
(2) Novation, that is, a debtor entering into a fresh
agreement with a creditor undertaking payment of
previously borrowed principal amount coupled with
interest by treating the sum total as principal, any D
contract express or implied and an express
acknowledgement of accounts, are the best evidence of
capitalisation. Acquiescence in the method of accounting
adopted by the creditor and brought to the knowledge
of the debtor may also enable interest being converted E
into principal. A mere failure to protest is not
acquiescence.
(3) The prevalence of banking practice legitimatises
stipulations as to interest on periodical rests and their
capitalisation being incorporated in contracts. Such F
stipulations incorporated in contracts voluntarily entered
into and binding on the parties shall govern the
substantive rights and obligations of the parties as to
recovery and payment of interest.
(4) Capitalisation method is founded on the principle that the G
borrower failed to make payment though he could have
made and thereby rendered himself a defaulter. To hold
an amount debited to the account of the borrower
capitalised it should appear that the borrower had an
opportunity of making the payment on the date of entry
or within a reasonable time or period of grace from the H
802 SUPREME COURT REPORTS [2019] 16 S.C.R.

A date of debit entry or the amount falling due and thereby
avoiding capitalisation. Any debit entry in the account
of the borrower and claimed to have been capitalised
so as to form an amalgam of the principal sum may be
excluded on being shown to the satisfaction of the court
that such debit entry was not brought to the notice of
B
the borrower and/or he did not have the opportunity of
making payment before capitalisation and thereby
excluding its capitalisation.
(5) The power conferred by Sections 21 and 35-A of the
Banking Regulation Act, 1949 is coupled with duty to
C act. The Reserve Bank of India is the prime banking
institution of the country entrusted with a supervisory
role over banking and conferred with the authority of
issuing binding directions, having statutory force, in the
interest of the public in general and preventing banking
D affairs from deterioration and prejudice as also to secure
the proper management of any banking company
generally. The Reserve Bank of India is one of the
watchdogs of finance and economy of the nation. It is,
and it ought to be, aware of all relevant factors, including
credit conditions as prevailing, which would invite its
E policy decisions. RBI has been issuing directions/
circulars from time to time which, inter alia, deal with
the rate of interest which can be charged and the periods
at the end of which rests can be struck down, interest
calculated thereon and charged and capitalised. It should
F continue to issue such directives. Its circulars shall bind
those who fall within the net of such directives. For such
transaction which are not squarely governed by such
circulars, the RBI directives may be treated as standards
for the purpose of deciding whether the interest charged
is excessive, usurious or opposed to public policy.
G
(6) Agricultural borrowings are to be treated on a pedestal
different from others. Charging and capitalisation of
interest on agricultural loans cannot be permitted in India
except on annual or six-monthly rests depending on the
rotation of crops in the area to which the agriculturist
H borrowers belong.
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 803
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

(7) Any interest charged and/or capitalised in violation of A
RBI directives, as to rate of interest, or as to periods at
which rests can be arrived at, shall be disallowed and/
or excluded from capital sum and be treated only as
interest and dealt with accordingly.
(8) Award of interest pendente lite and post-decree is B
discretionary with the court as it is essentially governed
by Section 34 CPC dehors the contract between the
parties. In a given case if the court finds that in the
principal sum adjudged on the date of the suit the
component of interest is disproportionate with the C
component of the principal sum actually advanced the
court may exercise its discretion in awarding interest
pendente lite and post-decree interest at a lower rate
or may even decline awarding such interest. The
discretion shall be exercised fairly, judiciously and for
reasons and not in an arbitrary or fanciful manner.” D

188. Before considering the applicability of the decisions above,
the factual gamut of the case has to be considered. The demand was
raised for the first time in the year 2003 despite the fact that the
definition of gross revenue was clear, and as is apparent from the
E
correspondence and the agreement reached between the parties, there
was no doubt what constitutes gross revenue. Licensees were aware
that these items concerning which they have raised the dispute were
included in the definition of gross revenue, as such, they had initially
questioned inclusion on the basis of the validity of the definition of gross
revenue. The challenge was found to be sans any basis by this Court. F
The objections raised concerning the validity of the gross revenue, were
wholly unsustainable and on the face of it, were liable to be rejected,
and came to be rejected finally and conclusively by this Court in the
year 2011. After that, again the objections have been repeated to
exclude those very revenue items which were held to be included once
G
over an effort has been made to get rid of the definition of gross
revenue. The objections which have been raised pertained to the
definition of gross revenue for which the court held they are part of
revenue. Now, relying upon AS-9 standards, an attempt has been made
by an indirect method for excluding items, which are expressly included
in the definition of gross revenue. Objections are too tenuous, and, as H
804 SUPREME COURT REPORTS [2019] 16 S.C.R.

A a matter of fact, there was no scope to raise such objections in 2003
itself. Because of the various correspondence which has been referred,
it becomes apparent that all these heads are included in the definition
of gross revenue, and there is no justification for the licensees to raise
the objections and to keep them pending for over two decades.
B 189. Further, the conduct of the licensees has also to be
considered in the backdrop of the fact that the regime of revenue sharing
was extremely beneficial than the previous regime of the fixed licence
fee, and they have tremendously benefited by it as is apparent from
the statistics of the revenue earned by the licensees under the revenue
C sharing regime. When Government has parted with the privilege as to
revenue on sharing basis under the license, and an agreement entered
into, it ought to have been precisely followed. The conduct of the
licensees was highly unfair, and anyhow and somehow, they had
attempted to delay the payment. It passes comprehension how they
D have contended that the demand has to be worked out after this Court
renders the decision. Demand had been raised way-back in the year
2003, which is ultimately the subject-matter of the lis. As the objections
are baseless and wholly untenable, it cannot be said that there was a
bona fide dispute concerning various items. The disputes raised could
not be termed to be bona fide at all. They were justified in order to
E delay the liability and the payment in accordance with the agreement.
In this backdrop and what has been held by us, we have to consider
whether the interest, penalty, and interest on penalty can be levied or
not. Particularly since it is the revenue sharing regime and the
Government has been deprived of the benefit of revenue which it would
F have earned but for granting the privilege which it has parted with in
favour of the licensees.

190. In M/s. Everest Industrial Corporation & Ors. v. Gujarat
State Financial Corporation, (1987) 3 SCC 597, this Court held that
the rate of interest payable on the principal amount due under the court’s
G
order passed under section 32 of the State Financial Corporations Act,
1951 would be as stipulated in the contract as the provisions of section
34 CPC are not attracted, order under section 32 being not a decree,
liability to pay contractual rate of interest cannot be disowned, merely
because of absence of direction for payment of interest in order under
H section 32. This Court has held:
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 805
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

“6. If as held by this Court the proceeding instituted under Section A
31(1) of the Act is something akin to an application for
attachment of property in execution of a decree at a stage
posterior to the passing of the decree no question of passing any
order under Section 34 of the Code would arise since Section
34 of the Code would be applicable only at the stage of the
B
passing of the decree and not to any stage posterior to the
decree. It may also be mentioned here that even under the Code
the question of interest payable in mortgage suits filed in civil
courts is governed by Order 34 Rule 11 of the Code and not by
Section 34 of the Code which may be applicable only to cases
of personal decrees passed under Order 34 Rule 6 of the Code. C
The High Court was right in holding that interest would be payable
on the principal amount due in accordance with the terms of the
agreement between the parties till the entire amount due was
paid as per the order passed under Section 32 of the Act. We
hold that the decision of the Karnataka High Court, referred to
D
above, which has applied Section 34 of the Code to a proceeding
instituted under Section 31(1) of the Act is not correctly decided.”
(emphasis supplied)
191. In Punjab Financial Corporation v. Surya Auto
Industries, (2010) 1 SCC 297, the Court held that when the terms of E
the agreement have not been questioned, contractual rate of interest
cannot be altered. The Court has observed thus:
“25. The High Court also committed serious error in declaring
that the appellant Corporation will be entitled to charge simple
interest at the rate of 10% w.e.f. 1-4-2003 i.e. after the expiry F
of six months from the date of taking over of the unit.
Undisputedly, the respondent had not challenged the terms of loan
agreement. Therefore, the High Court could not have suo motu
altered the terms of agreement and directed the appellant to
make fresh calculation of the outstanding dues and allowed the
respondent to pay the amount as per fresh demand by selling G
the mortgaged property. This approach of the High Court is ex
facie contrary to the law laid down in U.P. Financial Corpn. v.
Gem Cap (India) (P) Ltd., (1993) 2 SCC 299 and Haryana
Financial Corpn. v. Jagdamba Oil Mills (2002) 3 SCC 496.”
(emphasis supplied) H
806 SUPREME COURT REPORTS [2019] 16 S.C.R.

A 192. In Hindustan Steel Ltd. v. State of Orissa (supra), relied
on by licensees the matter was of imposition of penalty in a quasi-
criminal proceeding that penalty will not ordinarily be imposed unless
the party obliged either acted deliberately in defiance of law or was
guilty of conduct – contumacious or dishonest, or acted in conscious
disregard of its obligation. Penalty to be imposed is exercised by judicial
B
discretion. The ratio of the case, it is not attracted for the reason that
in the instant matter, it is the contractual rate of interest and penalty
agreed to which cannot be said to be arduous in any manner. The rate
of interest has been agreed to and particularly since it is a revenue-
sharing regime, and the licensees have acted in conscious disregard of
C their obligation. Thus, on the anvil of the decision above also, they are
liable to pay the dues with interest and penalty. There is no discretion
to vary the penalty. It is 50% of the amount which is in short-fall which
cannot be said to be unreasonable and that too, two grace periods have
been given in clause 20.8 to make payment of the same. As it is the
agreed term and cannot be said to be arbitrary, the ratio of the decision
D
is not attracted. Reliance has also been placed on Akbar Badrudin
Giwani v. Collector of Customs (supra), wherein the dispute was bona
fide. It was a case of exercise of power by the tribunal while imposing
a penalty and fine instead of confiscation. There is no such discretion
available when the parties have agreed in default what amount is to be
E paid. It automatically follows that it is not to be determined by licensor
once over again. Parties (licensor and licensees) are bound by the terms
and conditions of the contract. There is no enabling clause to vary either
the rate of interest or the penalty provided therein and even if permissible
it is not called for to vary interest or penalty fixed under the agreement
in the facts and circumstances of the case. The decision mentioned
F
above was concerning discretion to impose the penalty. Here, there is
no such discretion, and considering the conduct of conscious disregard,
the decision rather negates the submission than espousing the same.
193. Reliance has been placed on J.K. Industries Ltd. & Anr.
v. Union of India & Ors., (supra) and Tecumseh Products India Ltd.
G (supra). In both the cases, duty was not paid under the provisions of
section 11-A. There were divergent views of the High Courts. It was
not found to be a case of fraud, collusion, wilful misstatement, or
suppression of facts. Thus, the action of the imposing penal interest
under section 11A and other penalties were set aside as there was a
H bona fide dispute. In the present case, there is no bona fide dispute,
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 807
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

and it is not appropriate to vary the interest or the penalty. That has to A
be worked out from 2003 and not after the decision to be passed by
this Court. Facts in J K Synthetics Ltd. (supra) were different. In that
case, the assessee had paid the tax based on information supplied by
him in the return. Thus, it was held that it would not be proper to levy
interest under clause (a) of section 11B. In the instant case, the demand
B
had been raised by the licensor, and after that, untenable objections have
been raised which had no foundational basis, and the licensees have
taken inconsistent stands. Earlier they had questioned on the ground
that these items were wrongly included in the definition, now they are
contending that the same are not part of the definition in agreement.
C
194. Reference has also been made to the decision in Kailash
Nath Associates (supra). In that case, there was forfeiture of earnest
money. The factual matrix of the instant case is different. The case
was dealing with the court’s power to grant reasonable compensation
when the amount fixed in the contract is like a penalty; only reasonable
compensation can be awarded. Whether or not actual damage or loss D
is proved, has to be considered. It is only in cases where it is possible
to prove actual damage or loss, such proof is not to be dispensed. It is
only in cases where damage or loss is difficult or impossible to prove
that the liquidated amount named in the contract can be awarded. In
the instant case, it is quite reasonable amount of the penalty in case of E
default in payment of the amount. The term cannot be said to be
unconscionable. As the Government has been deprived of the revenue
and the licensees have been benefited by revenue sharing regime, in
spite of that, they have not shared the revenue. They are bound by the
stipulation, which is found to be quite reasonable in the facts and
circumstances of the case. F

195. In Central Bank of India v. Ravindra, (supra), this Court
considered the question of award of payment of interest and has held
that there is nothing wrong with the party voluntarily entering into the
transaction as to stipulation, for payment of compound interest ,at
reasonable rates and authorising the creditors to capitalise the amount G
on the amount remaining unpaid so as to enable interest to be charged
on the accrued rate on the interest component of the capitalised sum
for the succeeding period. Interest, once capitalised, sheds its colour
of interest and becomes a part of the principal to become a debt as
has been observed thus: H
808 SUPREME COURT REPORTS [2019] 16 S.C.R.

A “36. The English decisions and the decisions of this Court and
almost all the High Courts of the country have noticed and
approved long-established banking practice of charging interest
at reasonable rates on periodical rests and capitalising the same
on remaining unpaid. Such a practice is prevalent and also
recognised in non-banking moneylending transactions. The
B
legislature has stepped in from time to time to relieve the debtors
from hardship whenever it has found the practice of charging
compound interest and its capitalisation to be oppressive and
hence needing to be curbed. The practice is permissible, legal
and judicially upheld excepting when superseded by legislation.
C There is nothing wrong in the parties voluntarily entering into
transactions, evidenced by deeds incorporating covenant or
stipulation for payment of compound interest at reasonable rates,
and authorising the creditor to capitalise the interest on remaining
unpaid so as to enable interest being charged at the agreed rate
on the interest component of the capitalised sum for the
D
succeeding period. Interest once capitalised, sheds its colour of
being interest and becomes a part of the principal to bind the
debtor/borrower.
44. We are of the opinion that the meaning assigned to the
expression “the principal sum adjudged” should continue to be
E assigned to “principal sum” at such other places in Section 34(1)
where the expression has been used qualified by the adjective
“such”, that is to say, as “such principal sum”. Recognition of
the method of capitalisation of interest to make it a part of the
principal consistently with the contract between the parties or
F established banking practice does not offend the sense of reason,
justice and equity. As we have noticed, such a system has a long-
established practice and a series of judicial precedents upholding
the same. Secondly, the underlying principle as noticed in several
decided cases is that when interest is debited to the account of
the borrower on periodical rests, it is debited because of it having
G fallen due on that day. Nothing prevents the borrower from paying
the amount of interest on the date it falls due. If the amount of
interest is paid there will be no occasion for capitalising the
amount of interest and converting it into principal. If the interest
is not paid on the date due, from that date the creditor is deprived
H of the use of the money, and which it would have made if the
UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM 809
SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]

debtor had paid the amount of interest on the date due, the A
creditor needs to be compensated for deprivation. As held in
Pazhaniappa Mudaliar v. Narayana Ayyar, AIR 143 Mad 157,
the fact situation is analogous to one as if the creditor has
advanced money to the borrower equivalent to the amount of
interest debited. We are, therefore, of the opinion that the
B
expression “the principal sum adjudged” may include the amount
of interest, charged on periodical rests, and capitalised with the
principal sum actually advanced, so as to become an amalgam
of principal in such cases where it is permissible or obligatory
for the court to hold so. Where the principal sum (on the date of
suit) has been so adjudged, the same shall be treated as “principal C
sum” for the purpose of “such principal sum” — the expression
employed later in Section 34 CPC. The expression “principal sum”
cannot be given different meanings at different places in the
language of same section, i.e. Section 34 CPC.
(emphasis supplied)” D
196. Concerning penal interest, this Court in Central Bank of
India v. Ravindra (supra) has observed that the penalty is founded on
the doctrine of penal action. Penal interest can be charged only once
for one period of default, and therefore cannot be permitted to be
capitalised. E
“55. (1) Though interest can be capitalised on the analogy that
the interest falling due on the accrued date and remaining unpaid,
partakes the character of amount advanced on that date, yet
penal interest, which is charged by way of penalty for non-
payment, cannot be capitalised. Further interest i.e. interest on F
interest, whether simple, compound or penal, cannot be claimed
on the amount of penal interest. Penal interest cannot be
capitalised. It will be opposed to public policy.”
197. It is not levy of penal interest, which is involved in the instant
case. Thus, based on the decision mentioned above, we find that when G
there is contractual stipulation, the interest can be levied and
compounded.
198. Resultantly, we are of the considered opinion that 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, H
810 SUPREME COURT REPORTS [2019] 16 S.C.R.

A as agreed. Thus, we find 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, we find no ground 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
B
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
C 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. We have examined the matter upon merits and
then aforesaid conclusion indicates frivolous nature of objections.
D 199. In the result, the appeals of licensees are dismissed and filed
by DOT, are accordingly allowed in view of the findings recorded.
200. No order as to costs.

Divya Pandey Appeals disposed of.
E

F

G

H