TaxTMI 
TaxTMI 
2010 (6) TMI 558
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....enance of equipment used in providing these services. The return was filed declaring total business loss of Rs.4,58,54,400/-. However, the assessment was completed at an income of Rs.10,10,11,270/- including the disallowance of DOT licence fee Rs.4,53,14,736/- Space Segment Charges Rs.6,92,95,350/-, extra-ordinary items Rs.2,80,89,642/- and disallowance u/s.40A(2)(b) Rs.41,66,122/-, vide order dated 10.3.2005 passed u/s.143(3) of the Income tax Act, 1961 (the Act). On appeal, the ld. CIT(A) partly allowed the appeal. 3. Being aggrieved by the order of the ld. CIT(A) the assessee and revenue both are in appeal before us. ITA No.398/Mum/2006 (By Assessee) (A.Y. 2002-03): 4. Ground No.1 is against the sustenance of disallowance of licence fee Rs.4,53,14,736/- . 5. The brief facts of the above issue are that from the accounts of the assessee it was observed by the Assessing Officer that the assessee has claimed an expense of Rs.6,04,19,645/- on account of DOT licence fee. The Assessing Officer further noted that for the Assessment Years 2000-01 and 2001-02 the said expenses were treated as capital expenses and the ld. CIT(A) also confirmed the disallowance for these two years.....
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....thwell vs. Savill 4 TC 430 ; (3) Morse vs. Stedeford 18 TC 457 ; (4) Pendleton vs. Mitchells 45 TC 341 ; (5) Strick vs. Regent 43 TC 1, 37-38, 51(HL) ; (6) Kneeshaw vs. Abertolli 9 ITR Suppl 121 ; (7) Assam Bengal Cement vs. CIT 27 ITR 34 (SC) and (8) Kirloskar Oil Engines Ltd vs. CIT (1994) 206 ITR 13(Bom.) disallowed the DOT licence fee Rs.6,04,19,645/-. However, he was of the view that the amount paid is amotrised over a period of four years i.e. over the remaining period of the licence and hence he allowed Rs. 1,51,04,912/- and disallowed balance amount of Rs.4,53,14,736/- and added to the total income of the assessee. On appeal, the ld. CIT(A) following the earlier appellate order dated 23.11.2004 while agreeing with the findings of the Assessing Officer that the amount is admissible as deduction only in the manner provided u/s.35ABB of the Act, upheld the disallowance made by the Assessing Officer. 6. At the time of hearing the ld. Counsel for the assessee, at the outset, submits that the impugned issue is covered in favour of the assessee vide para 8-9 of the order of the Tribunal in assessee's own case in Comsat Max Limited vs. DCIT (2009) 29 SOT 436(Del.) He therefore, ....
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.... it has been held that the right to carry on business unfettered by any competition was a capital asset and as such the entire amount of Rs.40,000/- incurred annually for securing that end was capital expenditure, not allowable u/s.10(2)(xv) of the IT Act, 1922. The ld. Departmental Representative while relying on the ratio of above decisions, submits that the licence is a capital asset within the meaning of section 2(14) and, therefore, the DOT licence fee paid by the assessee is a capital expenditure and hit by section 35ABB of the Act. He further submits that if the same is not treated as capital expenditure then section 35ABB of the Act will become redundant. The ld. DR further submits that since it is a question of law, therefore, the decision relied on by the ld. Counsel for the assessee in assessee's own case supra, has no binding force and the same can be readjudicated by this Tribunal and for this proposition the reliance was also placed in C.K. Gangadharan and Another vs. CIT (2008) 304 ITR 61(SC); CIT vs. Oswal Agro Mills Ltd. (2009) 313 ITR 24(SC); DCIT vs. Divya Investment P. Ltd. (2009) 313 ITR 363(SC); and CIT vs. Alpine Solvex Ltd. (2003) 259 ITR 719(SC). He further....
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....y the Finance Act, 1997 w.r.e.f. 1.4.1996 was explained by the Board in a Circular No.763 dated 18.2.1998 reported in (1998) 230 ITR (St.) 54, as under : - "Amortisation of telecom license fees. - 19.1 In order to give a fillip to the telecom sector, a new section 35ABB has been inserted in the Income-tax Act. The section provides that any capital expenditure, incurred by an assessee on the acquisition of any right to operate telecom services and for which payment has actually been made to obtain a licence, will be allowed as a deduction in equal installments over the period for which the license remains in force. It further provides that where the license is transferred and proceeds of the transfer are less than the expenditure remaining unallowed, a deduction equal to the expenditure remaining unallowed as reduced by the proceeds of transfer, shall be allowed in the previous year in which the license has been transferred. It also provides that where the license is transferred and proceeds of the transfer exceed the amount of expenditure remaining unallowed, the excess amount shall be chargeable to tax as profits and gains of business in the previous year in which the licens....
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....be reviewed thereafter. The license fee can be paid in equal quarterly installments also. The license is initially for 10 years, though it is non-exclusive, nontransferable, is subject to termination under certain conditions, and is subject to some other conditions. Under Schedule 'B' to the Agreement, it is clearly provided "Communication Resources and other support facilities provided by the DOT." The license was procured in Assessment Year 1995-96 and therefore, it is valid up to Assessment Year 2005-06 and in support the Assessing Officer also relied on the order of the ld. CIT(A) in assessee's own case for Assessment Year 2001-02 and other cases as mentioned above. On appeal, the ld. CIT(A) upheld the disallowance made by the Assessing Officer for the same reasons that the same was confirmed by the ld. CIT(A) vide order dated 23.11.2004 in the appeal for the preceding Assessment Year. 14. We further find that the Tribunal in the assessee's own case in Comsat Max Limited vs. DCIT and vice versa supra, since reported in (2009) 29 SOT 436 (Del.) has held (page 445): "...The only reason for treating the expenditure as capital was that the assessee received an enduring benefit. ....
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....ade. The amounts were outgoings on capital account and were not allowable deductions". 17. In Tata Services Limited, supra, it has been observed (headnote): "Under section 2(14) of the Income-tax Act, 1961, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. The word "property" used in section 2(14) of the Act is a word of the widest amplitude and the definition has re-emphasised this by the use of the words "of any kind". Any right which can be called property will be included in the definition of "capital asset". A contract for sale of land is capable of specific performance. It is also assignable. Therefore, a right to obtain conveyance of immovable property is clearly property as contemplated by section 2(14) of the Act." 18. In Sterling Investment Corporation Ltd. supra, it has been observed (head note ) : "Under s. 2(14) of the I.T. Act, 1961, and s. 2(4A) of the Indian I.T. Act, 1922 (which is the corresponding provision under the Act of 1922), a capital asset means property of any kind. The contractual right of a purchase to obtain title to immovable property for a price, which right is assignable, can....
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....f the whole district. The question was whether in computing the profits of the appellant the sums of Rs. 5,000 and Rs. 35,000 paid to the lessor by the appellant could be deducted under section 10(2) (xv) of the Indian Income-tax Act, 1922. The Income-tax authorities, the Appellate Tribunal and High Court on a reference under section 66(1) held that the amount was not an allowable deduction under section 10(2)(xv). on appeal to the Supreme Court: Held, that the payment of Rs. 40,000 was a capital expenditure and was therefore rightly disallowed as a deduction under section 10(2)(xv) of the Act." 23. Whereas in the case before us the facts are entirely different inasmuch as it is nobody's case that the payment has been made for acquisition of licence. It is also not the case of the revenue that the right is assignable. In the case of the assessee though the licence was granted for 10 years initially, however, as per terms of licence the assessee is required to pay licence fee payable every year on quarterly basis. Therefore, the benefit available by making the payment of annual licence fee lasts for that year only. If the assessee wishes to carry on the business in terms of licen....
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....BB of the Act or as to how the same is not applicable to the facts of the present case. 27. Since the licence fee does not confer any enduring advantage, the licence granted can be revoked on the breach of any of the conditions subject to which it was issued or any default of payment of any fee payable for the licence and the licence is non exclusive, nontransferable and it is open to the Government of India to grant similar licences to other persons as well by virtue of powers conferred upon it u/s.4 of the Telegraph Act, thus there is no monopoly right conferred upon the assessee and further though the licence was granted for 10 years initially, however, as per terms of the licence, the assessee is required to pay licence fee payable every year on quarterly basis, therefore, the benefit available for making the payment of annual licence fee lasts for that year only and, therefore, the benefit of licence fee paid during the year endures only till the end of the relevant Financial Year and does not extend to the subsequent Financial Year and, hence, the licence fee is not in the nature of capital expenditure falls u/s.35ABB of the Act, but the same is revenue in nature, allowabl....
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....oviding cellular mobile telephone services". In doing so, however, Assessing Officer clearly erred in not appreciating the all important distinction between commencement of a business and starting of core commercial activity of that business. It is not in dispute that the assessee had set up dealer network, undertaken advertisement campaign and even accepted deposits from the subscribers under these circumstances; and just because cellular mobile service had not commenced, it could not be said that the assessee had not commenced business. In view of the above discussions, as also bearing in mind entirety of the case, we approve and confirm well reasoned conclusions arrived at by the ld. CIT(A) and decline to interfere in the matter." 29. In Comsat Max Ltd. (supra), the licence fee paid to DOT was treated by the Assessing Officer as capital expenditure. On appeal, the ld. CIT(A) held that the same allowable u/s.35 ABB of the Act. On further appeal, the Tribunal held that since the benefit endured only for the year under appeal and could not have been expanded to the subsequent years, the licence fee did not give the assessee any enduring benefit in the relevant assessment year. B....
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....006) 8 SOT 376(Del.) and M/s. Bharti Cellular Ltd.(supra) has held that the amount of Rs.67.51 crores paid by the assessee to DOT as licence fee is an allowable expenditure u/s.37(1) of the Act in computing the profits of the assessee's business". 30. For the reasons as discussed above we hold that the addition of Rs.4,53,14,736/- out of the DOT licence fee paid Rs.6,04,19,645/- is an allowable expenditure u/s.37(1) of the Act in computing the profits of assessee's business and accordingly the Assessing Officer is directed to allow the same. The ground taken by the assessee is, therefore, allowed. 31. Ground No.2 is against the sustenance of disallowance of arrears of licence fee Rs.1,94,97,604/- and interest Rs.78,37,773/-. 32. The brief facts of the above issue are that from the accounts of the assessee it was observed by the Assessing Officer that the assessee company interalia claimed arrears of licence fee Rs.1,94,97,604/- and interest on delayed payment Rs.78,37,773/-. The assessee was asked as to why these expenses should not be disallowed. In response it was interalia submitted by the assessee "that the demand notices have been received for DOT and hence, the liabi....
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....t the time of hearing the ld. Counsel for the assessee submits that the payment of licence fee is covered in favour of the assessee by the decision of Tribunal in assessee's own case in Comsat Max Limited supra, therefore, the same be allowed as business expenditure. With regard to the disallowance of interest he submits that interest is not akin to licence fee and in any case it is covered by the decision of the Delhi Bench of the Tribunal in the case of Bharati Cellular Limited vs. Dy. CIT in ITA No.5335/Del/2003 for Assessment Year 2000-01 order dated 29.5.2009. 35. On the other hand the ld. DR while relying on the order of the Assessing Officer and the ld. CIT(A) submits that the plea taken by him in assessee's ground No.1 may be considered while deciding the impugned ground taken by the assessee . 36. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the ld. CIT(A) while agreeing that both the payments are allowable in the year under consideration held that the same are allowable only in the manner provided u/s.35 ABB of the Act. For the reasons as discussed in ground No.1 of this appeal in paras ....
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....m limit for draw down and there was a penal interest @ 2.42% per annum charged for excess drawing above the sanctioned limit. In order to tide over its poor funds position the appellant borrowed funds from its related parties which were available immediately without any procedural delay and on easy terms and conditions. Therefore, no such disallowance is called for. He further submits that once it is accepted that the transaction is for business purposes, the rate has to be left to the decision of the businessman unless proved otherwise. He further submits that fair market value or basis adopted has not been established by the Assessing Officer. Further, no disallowance of interest was made on the same facts in the earlier year. The reliance was also placed on the following decisions: 1. Pondy Metal & Rolling Mills 107 TTJ 336(Del.), 2. Voltamp Transformers 129 ITR 105(Guj.), 3. S.K. Engineering vs. Jt.CIT 103 ITR 97 (Bang.), 4. CIT vs. Edward Keventer 86 ITR 370(Cal.); approved in 115 ITR 149(SC), 5. Gujarat Guardian 114 TTJ 565 (Del.), 6. Astt. CIT vs. Kin Ship Services(India)(P.) Ltd.(2009) 31 SOT 375(Cochin), 7. Batilivala & Karani 2 SOT 379(Mum.), 8. Udaipur Distillery 316 ITR....
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....i Airtel (7 appeals) A.Y:02-03, 03-04 & 04-05 30 44. In S.A. Builders vs. CIT(A) and Another(2007) 288 ITR 1(SC) it has been observed by Their Lordships (at placitum 35 appearing at page-9 of the ITR ) : " ....that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be complelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent business man would act. The authorities must not look at the matter from their own view point but that of a prudent businessman....". 45. In Anandji Shah vs. CIT supra, the assessee firm paid interest to the estate of Late Smt. Taramathi S. Shah worked out at 24% per annum. The Assessing Officer held that the payment of interest at 24% was excessive and invoking provisions of section 40A(2) of the Act, allo....
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.... referred to us is that interest under section 234D is chargeable from the Assessment Year 2004-05 and it could not be charged for earlier years even though regular assessment for these years are framed after June 1, 2003, or the refund was granted for those years after the said date." Applying the ratio of the above decision to the facts of the present case we find that the assessment order was passed on 10.3.2005 i.e. after June 1, 2003 for the Assessment Year under consideration i.e. 2002-03, the interest u/s.234D is not chargeable as the same is chargeable from the Assessment Year 2004-05 and accordingly the ground taken by the assessee is allowed. 33 ITA No.422/M/06 (Revenue Appeal) (A. Y.2002-03): 52. Ground No.1 is against the deletion of disallowance of Rs.6,92,95,350/- out of Rs.9,23,93,800/- made by the Assessing Officer on account of space segment charges. 53. The brief facts of the above issue are that it was interalia observed by the Assessing Officer that the assessee has claimed Rs.9,23,93,800/- on account of space segment and leased line charges. These payments were made to DOT as per the licence agreement. The payment was for the licence given to the as....
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....) in deleting the disallowance made by the Assessing Officer. He therefore, submits that the order passed by the ld. CIT(A) be upheld. 56. After hearing the rival parties and perusing the material available on record we find that the Tribunal in assessee's appeal in Comsat Max Ltd. vs. DCIT and vice versa (supra), has observed and held as under: "25. ....The payment having been made for allocation of space segment charges and for the use of satellite does not bring into existence any capital asset. The fees being payable for the use of facility and not for the facility itself are allowable as revenue expenditure." Respectfully following the same and keeping in view of our finding recorded in paras 27 - 30 of this order and also the rule of consistency we are of the view that the payment having been made and for the allocation of space segment charges and for the use of satellite does not bring into existence any capital asset. The fees being payable for the use of facility and not for the facility itself are allowable as revenue expenditure and accordingly the order passed by the ld. CIT(A) in deleting the disallowance is upheld. 57. Ground No.2 is against the deletion of dis....
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....essee's appeal in ITA No.398/M/06 for the Assessment Year 2002- 03, therefore the C.O. filed by the assessee may be treated as infructuous which was not objected to by the ld. DR . 64. That being so, and in the absence of any contrary material placed on record by the parties, and keeping in view of our findings recorded in assessee's appeal as above, the grounds taken by the assessee in its C.O. do not require any fresh adjudication and accordingly the same are rejected being infructuous. ITA No. 2935/Mum/2009(By Assessee) (A.Y.2003-04) ITA No. 3611/Mum/2009(By Revenue) (A.Y.2003-04) ITA No. 2936/Mum/2009(By Assessee) (A.Y.2004-05) ITA No. 3609/Mum/2009(By Revenue) (A.Y.2004-05) 65. At the time of hearing both parties have agreed that the facts and the issues raised in the aforesaid appeals except ground No.3 in revenue's appeal relating to deduction u/s.80IA for Assessment Years 2003-04 and 2004-05 are the same as in the assessee's and revenue's appeal for the Assessment Year 2002-03, therefore, the plea taken by them in both the appeals may be considered while deciding these appeals. 66. That being so, and in the absence of any contrary material placed on record by the p....