Wednesday, 12 December 2018

HC : Approves Telecom Co.'s 'actual usage' based revenue recognition method for prepaid cards

Delhi HC confirms ITAT order holding that the amount received by assessee (engaged in providing basic telecom services) on sale of prepaid cards to the extent of unutilized talk time did not accrue as income in the year of sale i.e. AYs 2003-04, 2004-05 & 2009-10; Approves assessee’s mode of recognizing revenue on prepaid cards on the basis of actual usage and carrying forward unutilized amount outstanding on the prepaid cards to the next year in view of the matching principles for revenue recognition as enshrined in the Accounting Standards, rejects Revenue’s stand that assessee must account for the entire amount; However, HC states that Revenue’s contention that the prepaid amount once paid and received by assessee was forgone by the subscriber and accordingly appropriated by assessee is substantially correct; At the same time, HC clarifies that “the payment was an advance and was subject to the respondent-assessee providing basic telecom service as promised, failing which the unutilized amount was required to be refunded to the pre-paid subscribers” under the ordinary law of contract or special enactments like the Consumer Protection Act; Lastly, HC rules that “unutilized amount when the prepaid card lapses has to be treated as income or receipt of the respondent-assessee on the date when the card had lapsed.”:HC 

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