License Fee Treated as Revenue Expenditure, TDS Credit Allowed Continuously

The ITAT Delhi dismissed the Revenue's appeal regarding the treatment of license fee as revenue or capital expenditure, upholding that under the new revenue sharing regime, the license fee should be treated as revenue expenditure. Additionally, the ITAT allowed the assessee's appeal on the issue of TDS credit on deferred revenue, stating that credit for TDS should be given continuously for assessment years, especially when income was recognized simultaneously with project execution progress.

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Issues:
1. Treatment of license fee as revenue or capital expenditure.
2. Allowability of TDS credit on deferred revenue.

Issue 1: Treatment of license fee as revenue or capital expenditure:

The appeal involved a dispute over the treatment of license fee paid by the assessee to the Department of Telecommunication (DOT). The Revenue contended that the license fee should be considered as capital expenditure, while the assessee argued that it was revenue expenditure. The Revenue claimed that the license fee was for acquiring the right to operate telecommunication services and should be amortized under section 35-ABB of the Income Tax Act. However, the ITAT upheld the decision of the CIT(A) based on previous tribunal orders, stating that under the new revenue sharing regime, the license fee should be treated as revenue expenditure. The ITAT referred to a previous decision where it was held that the license fee under the new regime was allowable as revenue expenditure. Consequently, the appeal of the Revenue was dismissed.

Issue 2: Allowability of TDS credit on deferred revenue:

The second issue revolved around the disallowance of TDS credit on deferred revenue claimed by the assessee. The Assessing Officer (AO) disallowed the TDS credit, arguing that if the corresponding income was not taxable in a particular year, then the credit for tax deducted should not be granted in that year. The assessee, however, contended that it followed a percentage completion method for revenue recognition and recognized revenue over the tenure of contracts. The assessee claimed TDS credit for tax deducted by customers in previous years relevant to the current assessment year, even if the related revenue was booked in subsequent years. The assessee argued that this was a timing difference and cited precedents where TDS credit was allowed irrespective of the year to which it related. The ITAT held that credit for TDS should be given continuously for assessment years, especially when income was recognized simultaneously with project execution progress. The ITAT referred to previous decisions directing the revenue to allow proportionate TDS credit for income declared during the relevant year. Consequently, the appeal of the assessee on this ground was allowed for statistical purposes.

In conclusion, the ITAT Delhi ruled on two main issues regarding the treatment of license fee and the allowability of TDS credit on deferred revenue. The judgments provided clarity on these matters based on the arguments presented by the parties and relevant legal provisions.

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