1. All these cross appeals and cross objection in respect of the three assessees are directed against the orders of the learned CIT (Appeals) in the respective cases. Since common issues are involved in all these appeals, they were heard together and are being disposed of by this consolidated order, for the sake of convenience.

1.1 These matters were fixed before the Division Benches but at the instance of the assessees and in the light of the importance of the issues involved, a request was made to the Hon’ble President to refer the matter to a Special Bench under section 255(4) of the Income-tax Act, 1961 (the Act). The President, I.T.A.T after considering the facts and circumstances of the case, decided to constitute a Special Bench. The following question was referred to the Special Bench:

"Whether, on the facts and in the circumstances, the revenues earned by the appellant from supply of equipment and software to Indian Telecom Operators were taxable in India?"

2. It may be relevant to mention that the revenue had earlier opposed the constitution of a Special Bench. The Revenue further opposed joining of Ericsson and Nokia as parties before the Special Bench. However, subsequently the learned counsel appearing for the revenue Shri G.C. Sharma, Sr. Advocate agreed that a Special Bench may be constituted and the above mentioned two assessees may also join as parties.

3. Before the hearing started on 19th July, 2004, Mr. M.S. Syali, the learned counsel for Motorola, referred to the assessee’s application dated "Nil" (received in the office of the Tribunal on 26-5-2004) and requested the Bench that he be permitted to argue on the validity of the notice issued under section 142(1) of the Act as entire appeals were to be heard by the Bench as per directions dated 19-1-2004. Shri G.C. Sharma, learned counsel appearing for the revenue, opposed the above request. It was argued by Shri Sharma that only a specified question has been referred to and is to be considered by the Special Bench. After hearing all the concerned parties at length, the Bench, vide its order dated 20th July, 2004 directed that the entire appeals in all the three cases will be heard by the Special Bench.

4. Two major issues which arise in the appeals are:

(a)The validity of the notice issued under section 142(1) of the Act, and

(b)The validity of the levy of interest under sections 234A and 234B of the Act.

The first issue, arises only in the cases of Motorola and Ericsson, whereas the second issue arises in all the three cases namely Motorola, Ericsson and Nokia, We propose to decide these two issues first and thereafter decide the various grounds assessee-wise.

Validity of notice under section 142(1) (Motorola & Ericsson):

5. The first ground in the case of Motorola is against the validity of the notice issued under section 142(1) of the Act. The said notice was issued on 3rd of November, 1999 and was served thereafter. The learned counsel for the assessee submitted that the said notice should have been issued and served within one year from the end of the previous year. The notice issued and served after the above date was barred by limitation and hence the assessment was vitiated.

5.1 Shri Syali referred to the provisions of sub-sections (2) and (4) of section 139. He contended that before 1-4-1989 sub-section (2) of section 139 prescribed that the notice thereunder, should be served before the end of the assessment year. After 1-4-1989, section 142(1) was amended to provide for issue of notice calling for the return of income. According to Mr. Syali this was a case of substitution of the earlier section 139(2) and though section 142(1) did not specify any time limit within which the notice should be issued, his contention was that such a limitation was built in and should be inferred having regard to the scheme of the statute. Mr. Syali pointed out that section 142(1) provided for two situations namely:

(a)Where a return was filed under section 139(1) in which