2013 (9) TMI 200 - AT - Income Tax

Tribunal decides on deduction under Section 35ABB for variable license fees, upholding assessee's claim.

DEPUTY COMMISSIONER OF INCOME TAX Versus M/s IDEA CELLULAR LTD

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal regarding the entitlement to deduction under Section 35ABB for ... Deduction u/s. 35ABB - Expenditure for obtaining licence to operate telecommunication services - Held that:- As there is a change in Telecom policy enhancing license period from 10 to 20 years on payment of one time entry fee /migration fee, the deduction is to be allowed on revised basis. The issue of revised claim was decided by Ld. CIT(A) in earlier years with certain directions to AO which are yet to be implemented. The basis of revised amount for deduction is required to be determined in the respective years by AO. Since the Revenue is not in appeal on the directions of CIT(A) in earlier years, whatever amount is quantified therein, similar amounts on that basis are to be allowed in this year, being consequential. AO is directed to determine accordingly the eligible amount in this year - Decided in fsvour of assessee. Issues Involved:1. Entitlement of the assessee to eligible deduction under Section 35ABB of the Income Tax Act for variable license fees.2. Disallowance of fixed license fees claimed under Section 35ABB by the assessee.Detailed Analysis:1. Entitlement to Deduction under Section 35ABB for Variable License Fees:The Revenue contested the CIT(A)'s decision, which allowed the assessee's claim for a deduction of Rs. 34.41 crores under Section 35ABB for variable license fees, contrary to the AO's allowance of Rs. 7.18 crores. The CIT(A) based its decision on earlier orders from the assessment year 2001-02 and the ITAT's decision in ITA No. 310/Del./2006 dated 16.12.2009.The Tribunal referenced a similar issue adjudicated in the case of Bharti Cellular Ltd. vs. DCIT in ITA No. 5335/Del/2003, where the Tribunal held that the variable revenue sharing fee paid under the New Telecom Policy 1999 should be treated as revenue expenditure, not capital expenditure. The Tribunal cited the Bombay Bench's decision in MTNL, which concluded that the license fee was for the right to conduct telecom business and did not create a capital asset. The fee was deemed an allowable deduction under Section 37 of the Act.Following this precedent, the Tribunal decided in favor of the assessee, setting aside the CIT(A)'s order and dismissing the Revenue's appeal. The Tribunal also noted similar decisions in the assessee's own case for assessment year 2003-04 and in other cases like Bharti Airtel Ltd. vs. ACIT and ACIT vs. Vodafone Essar Gujarat Ltd.2. Disallowance of Fixed License Fees Claimed Under Section 35ABB:The assessee appealed against the CIT(A)'s decision to uphold the AO's disallowance of Rs. 23.95 crores from the fixed license fees claimed under Section 35ABB. The assessee also raised an alternative claim of Rs. 18.77 crores based on the deduction computed by Idea Cellular Ltd., with which it was amalgamated.During the proceedings, the assessee's counsel withdrew the primary ground, acknowledging that Idea Cellular Ltd. followed a different method for claiming fixed license fees, consistent with the authorities' orders. However, the counsel pressed for the alternative contention regarding the basis for allowing the deduction under Section 35ABB.The Tribunal examined the details of the payment of license fees and the status of claims under Section 35ABB for various years. It noted that due to changes in the Telecom policy, which extended the license period from 10 to 20 years upon payment of a one-time entry fee/migration fee, the deduction should be allowed on a revised basis. The CIT(A) had directed the AO to recompute the deduction in earlier years, and the Tribunal directed the AO to determine the eligible amount for the current year based on these directions.The Tribunal concluded by treating the assessee's alternative contention as allowed for statistical purposes, directing the AO to determine the eligible deduction amount accordingly.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, directing the AO to determine the eligible deduction amount for the current year based on the directions given in earlier years. The order was pronounced in the open court on 14th August 2013.