TaxTMI 
TaxTMI 
2015 (12) TMI 1505
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....ITA No 4364/Del/2011 by revenue Rs. 26,37,65,421/- 3 Digital Radio (Kolkata) Broadcasting limited ITA No 1317/Del/2011 by Assessee and ITA No 1721/Del/2011 by revenue Rs. 1,77,65,995/- 2. As the facts and the circumstances of all these six appeals are identical except the amount involved, we dispose them off by this common order and for the sake of simplicity discuss facts and circumstances in appeal no. ITA No.1316 /Del/2012 & ITA No 1720 / Del/2012 for AY 2006-07 preferred by assessee and Revenue respectively. 3. Briefly stated the facts are that assessee companies are engaged in the business of FM radio broadcasting for which they were awarded license from the Ministry of Information and Broadcasting, Government of India for operation of F M radio station in respective cities. Successfully participating in the auction held in March, 2000 it entered in to a licences agreement dated 27/10/2000 with Ministry of Information and Broadcasting. Tenure of that license was for a period of 10 years. License fee was fixed for the first year at Rs. 7,12,50,000 and subsequently there is an escalation clause of 15 % every year during the term of license. Such licenses were m....
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....ement executed with the ministry of Information and broadcasting. Then they moved to revenue sharing model of phase-II for a fresh period of 10 years with effect from 1.04.2005. 6. For AY 2006-07 the assessee claimed following deduction for license fee expenditure:- I. For phase -I Rs. 12,65,82,440/- a. Assessee paid Rs. 7,12,50,000/- as license fee for phase-I up to Ay 2003-04 out of which Rs. 71,25,000/- was claimed as deduction for AY 2004-05 and 2005-06. Therefore total deduction allowed to them out of Rs. 7,12,50,000/- is of Rs. 1,42,50,000/-. Balance amount of Rs. 5,70,00,000/- was claimed as deduction in A.Y. 2006-07. b. Assessee further paid Rs. 5,46,25,000/- in AY 2005-06, out of which sum of Rs. 60,69,444/-was claimed and allowed in AY 2005-06 and the balance amount of Rs. 4,85,55,556/- was claimed during the year. c. Assessee further paid a sum of Rs. 2,10,26,684/- in AY 2006-07 was claimed during the year. II. For Phase-II Rs. 3,00,80,222/- a) Rs. 2,22,25,222/- u/s 35ABB being 1/10th of the migration fees of Rs. 22,22,52,249/- as paid over the period of 10 years as per license term. b) Rs. 78,55,000/- u/s....
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....sed as business income and not under the head " income from other sources" 10. Revenue being aggrieved with the order of CIT (A) has risen following grounds of appeal. 1. On the facts and circumstances of the case and in law, ld. CIT (A) has erred in allowing Rs. 1,26,58,244/- being 1/10th of the total license fees claimed u/s 35ABB of the Act. 2. On the facts and circumstances of the case and in law, the ld. CIT (A) has erred in directing the AO to verify the record and allow carry forward of unabsorbed depreciation / business loss as per law. 11. We take up the ground no 1 of appeal of assessee and revenue together as both are linked to the issue of allowability of license fee paid under phase-I. 12. Before us LD AR of the assessee submitted as under :- (i) That such license fee expenditure of Rs. 26,37,65,421/- as paid under Phase-I license regime is allowable in full during the year under consideration in accordance with sub-section (2) of section 35ABB, For this he relied on the provision of section 35ABB(2) and also the notification issued by the Govt, of India Notification No. 39 dated 9th January, 2004,whereby under the proviso to clause ....
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.... "transfer" u/s 2(47) is not applicable to section 35ABB, then he pressed to look at the ordinary/common meaning of the word 'migrate' and 'transfer'. As per the dictionary meaning of these words both these words are synonyms. Hence, from this angle also, migration of license from Phase-I regime to Phase-II license regime is to be considered as transfer of license and therefore, the Assessee' s case is covered under sub-section (2) of section 35ABB. (iii) If Assessee had opted to surrender its Phase-I license instead of migrating to Phase-II license, then the remaining unallowed license fee expenditure of Rs. 26,37,65,421/- relating to Phase-I license would have been allowed to the assessee during the year under consideration in accordance with section 35ABB(1) of I.T. Act even if the 'Assessee had made a bid for and obtained a new Phase-II licence for the same city. By opting for and migrating from Phase-I to Phase-II licence, the case of the Assessee is not different from the above mentioned situation and therefore, the entire remaining unallowed license fee expenditure pertaining to Phase-I licence deserves to be allowed during the year under con....
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.... of Phase-I license fees dues was not only a precondition for migrating to Phase-II license regime but was also a precondition for the other option of surrendering the Phase-I license. Hence, the Ld. CIT(A) findings that payment of arrears of Phase-I license fee is to be considered as part and parcel of migration fee is not based on the factual position because such payment of arrears of Rs. 26,37,65,421/- can at no stage be considered to be a payment under Phase -II license regime. (vi) In view of the above, the entire remaining unallowed licence fee expenditure of Rs. 26,37,65,421/- under Phase-I licence as actually paid deserves to be allowed in full during the year under consideration as per sub-section (1) of section 35ABB since the term of such license had come to an end on 1st April, 2005. (vii) Section 35ABB was explained vide Departmental Circular 763 dated 18th February, '1998 placed at page 80of the paper book according to which, this section was introduced to give a fillip to the telecom sector and therefore, any capital expenditure actually incurred by an assessee on the acquisition of any right to operate telecom services is to be allowed as a de....
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....s disallowed the same holding that it is a capital loss and there is not transfer as envisaged u/s 35ABB (2) of the act. CIT (A) has upheld both the contention of AO however he has increased the amount of license fees paid under phase-II with the amount remaining unallowed in the hands of assessee for fees paid for Phase-I and granted the deduction on such amount over the new term of ten years of license in phase-II. 15. Provision of section 35ABB are as under :- Expenditure for obtaining licence to operate telecommunication services. 35ABB. (1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services [either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year] and for which payment has actually been made to obtain a licence, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure. (2) Explanation.-For the purposes of this section,- ....
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....s year in which the licence is transferred or in respect of any subsequent previous year or years. (5) Where a part of the licence is transferred in a previous year and sub-section (3) does not apply, the deduction to be allowed under sub-section (1) for expenditure incurred remaining unallowed shall be arrived at by- (a) subtracting the proceeds of transfer (so far as they consist of capital sums) from the expenditure remaining unallowed; and (b) dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the licence is transferred. (6) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers the licence to the amalgamated company (being an Indian company),- (i) the provisions of sub-sections (2), (3) and (4) shall not apply in the case of the amalgamating company; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalga-mating company if the latter had not transferred the licence.] 72[(7) Where, in a scheme of ....
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....r this section for remaining period will be calculated as expenditure remaining unallowed less sale proceeds)/No. of years remaining for effectiveness of license. Where proceeds are more than the expenditure remaining unallowed Amount of sale proceeds or amount of expenditure incurred to obtaining license (whichever is less) as reduced by the expenditure remaining unallowed shall be taxable as business profits in the year of transfer, whether business exists or not in that year. If the sale proceeds is more than the expenditure incurred to obtain license, then such excess is taxable as Capital Gain under Section 45. d) In case of amalgamation or demerger, provisions apply to amalgamated/demerged company as they would apply to amalgamating/demerging company. e) If deduction is allowed for any previous year under sub section (1), no deduction shall be allowed of such sum in that previous year or subsequent previous year u/s 32)(1) of the act. 17. License fee paid under phase-I is governed by the provision of the License agreement entered in to between Government of India and assessee on 27th October 2000. The copy of same is placed at paper book page no 21 to 42.....
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....ibed eligibility criteria given at item no. 3 below will proceed to the next round for making financial bids for specific channels in different cities. 2.2 Participants of Phase 1, who exercise their option to be considered for Phase 2, including those licensees who are eligible for automatic migration for channels already operationalised by them, shall be eligible to be considered for the pre-qualification round for fresh tendering under Phase 2, subject to their fulfilling the prescribed eligibility criteria. MIGRATION TO PHASE 2. 1. Licensees of Phase-I, who have actually operationalized their channels would be given the option to migrate to Phase 2 Policy Regime. They will have to exercise their initial option by the prescribed date to automatically migrate to Phase 2 Policy regimes in accordance with the terms and conditions of migration or continue under Phase 1 or surrender their licenses with one month's notice. 2. In the event of surrender of channels, Government may include the surrendered channels for allotment under the Phase-II policy regime. 3. Automatic migration shall be considered for only those license holders of Ph....
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....sting may cancel its license and permit it to close down the station, and may allocate the frequency so released to the next highest eligible bidder under Phase 2." 19. Now first we examine claim of assessee u/s 35ABB (2) of the Income tax act. According to that section if a. Whole of license is transferred where proceeds are less than the expenditure remaining unallowed, expenditure remaining unallowed as reduced by the amount of sale proceeds is allowed as a deduction in the year of transfer. b. Where proceeds are more than the expenditure remaining unallowed amount of sale proceeds or amount of expenditure incurred to obtaining license (whichever is less) as reduced by the expenditure remaining unallowed shall be taxable as business profits in the year of transfer, whether business exists or not in that year. c. If the sale proceeds is more than the expenditure incurred to obtain license, then such excess is taxable as Capital Gain under Section 45. 20. Therefore according to us, this section postulates following necessary ingredient: a. There should be a transfer of the License already granted. b. There should be proceeds of th....
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....automatic migration was set at April 1, 2005. As it is submitted that assessee has paid all their dues in terms of that letter they were entitled for automatic migration from phase-I to phase -II. Further according to the new policy better terms and conditions are offered to the existing operators by migration from phase-I to phase-II. Further looking to the agreement entered in to by assessee and GOI for phase-I and Phase-II, there is no substantial change in the terms and conditions except that License fee payments has changed from 'Fixed fee basis' to 'revenue sharing basis' and duration of payment. Further On exercising its option to automatically migrate to Phase 2, and payment of the OTEF within the prescribed period, each eligible operationalised license holder of Phase 1 shall be issued a fresh permission with the same terms and conditions as for successful bidders of Phase-II. Therefore according to us, it is not transfer of license butt it is the same license where terms and conditions of payments as well as other conditions are modified. Hence accordingly, there is no transfer of license made by assessee but it is same license for the same city with modif....
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....f commencement of the business. f. Such expenditure is allowed for the remaining time for which the license remains in force. 26. According to the migration policy the new license shall commence with effect from 1-4.2005 with following three options:- a. Migrate to Phase-II policy regime with fresh term of 10 years provided they had operationalised their FM channels and paid off all license fees dues of Phase-I license up to the cut-off date of 1st April 20052 and were not in default of any other license conditions till the date of migration to phase-II. b. Continue to remain under Phase-I policy regime c. Surrender their FM channel under Phase-I license in order to exit. Accordingly assessee has exercised option to migrate to Phase-II and not to continue under phase-I policy. As per chart submitted by the assessee showing difference between the Phase-I and Phase II, there are change in the payments terms which has become from fixed payment regime to revenue sharing regime, in the conditions pertaining to shareholding, conditions for appointment of directors, hiring of broadcasting equipment's etc. As we have already held that migration....
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....o Phase-II license regime. The AO has disallowed the same by treating it as a capital loss. On careful examination, I find that the migration of license from Phase-I license regime to Phase-II license regime does not per-se amount to 'transfer 'of license by the appellant as required under sub-section (2) of section 35ABB of I.T. Act in order to justify the appellant's claim for allowing the remaining entire license fee expenditure of Rs. 12,65,82,440/- under Phase-I license regime during A.Y 2006-07 itself. In this case, I find that while migrating from Phase-I license regime to Phase-II license regime, there was no transfer of license from the appellant to any other party. The case laws as cited by the ld. AR vide its submissions dated 18.11.2010 are distinguishable on facts as such cases deal with definition of 'transfer' of a capital asset u/s 2(47) of the Act which includes exchange or relinquishment of the asset or extinguishment of any rights therein. What we are concerned here in this case is not 'transfer' within the meaning of section 2(47) of the Act, but under section 35ABB of the Act which is entirely different in context and application as ....
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....to Phase-II license regime. 5.9 In view of the above, the remaining expenditure on account of Fixed License Fee as actually incurred by the appellant under Phase-I license regime becomes part and parcel of all the payments as made in order to become eligible for obtaining Phase-II license. As OTEF (migration fee) of Rs. 22,22,52,219/- has been accepted by the AO to be allowed over the 10 year term of Phase-II license under sub-section (1) of section 35ABB, on the same basis, I am of the view that the remaining expenditure of Rs. 12,65,82,440/- as incurred by the appellant under Phase -I license also needs to be allowed over the new 10 year term under Phase-II license regime starting from A.Y. 2006-07 in accordance with section 35ABB(1) of I.T. Act read with CBDT's Circular 763 dated 18.12.1998. 5.10 I find that the above issue is similar to the issue of allowability of license fee on migration from Fixed License Fee regime to Revenue Sharing regime in case of telecom companies as per the policy of the Department of Telecommunication, Govt. Of India. In this regard, in the case of RPG Cellcom Ltd. (presently known as Idea Cellular Ltd.) pertaining to this charg....
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....essee is dismissed. 28. Assessee has raised alternative ground of allowance of depreciation u/s 32(i) (ii) on the amount of license fees. Contention of the assessee was that if the license fee expenditure of Rs. 26,37,65,421/- is not considered to be allowable in full during the year under consideration as per section 35ABB, then alternative submission as also taken up before CIT(A) deserves to be considered according to which section 32(i)(ii) of I.T. Act recognizes licenses as an intangible asset on which depreciation is to be allowed as prescribed under the Income-tax Rules which prescribes the rate of 25% as per Rule 5 of Appendix I (Part B). 29. We have carefully considered the rival contention on this issue and we are of the view that provision of section 35ABB(8) which provides that Where a deduction for any previous year under sub-section (1) is claimed and allowed in respect of any expenditure referred to in that sub-section, no deduction shall be allowed under sub-section (1) of section 32 for the same previous year or any subsequent previous year. Further as held by is in deciding the issue of allowability of claim of the assessee u/s 35ABB (1) wherein we have allo....