TaxTMI 
TaxTMI 
2015 (12) TMI 1505
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....ital 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 made operational from 29/04/2003,i.e. AY 2004-05. As the F M radio indus....
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....ring 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 37 (1) of the act being the annual license fee expenditure incurred by the assessee. 7. There is no dispute about the claim of deduction of asses....
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....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 (k) of sub-section (1) of section 2 of the TRAI Act, 1997 as amended, the scope of the expression telecommunication services was increased to include the broadcasting services and cable services also. Based o....
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....h 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 consideration itself and not over the next 10 years period which is applicable to the new Phase-II licence. (iv) Without prejudice to the above, if it is held that it is not a case of 'transfer' of license because t....
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.... 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 deduction in equal instalments over the period for which the license remains in force. It was further provided that where a license is transferred and the proceeds of the transfer are less than the expenditure remaining unallowed, a deduction equal to the expenditur....
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.... 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,- 71[(i) "relevant previous years" means,- (A) in a case where the licence fee is actually paid before the commencement of the business to operate telecommunication services, the previous years beginning with the previous year in which such business commenced; (B) in any other case, the previous years....
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....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 demerger, the demerged company sells or otherwise transfers the licence to the resulting company (being an Indian company),- (i) the provisions of sub-sections (2), (3) and (4) shall not apply in the case of the demerged company; and (ii) the provisions of this section shall, as far as may be, apply to the resulting company as they would have applied to the demerged company if the latter had not transferred the licence.] 73[(8) Where a deduction for any p....
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....ore 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. Salient conditions of the agreement are as under :- a) License is granted on non-exclusive basis for the period of 10 years. The licensor reserves the right to increase the numbers of centres and number of channels available at a particular centre in future date without assigning any reason. b) License is a non-transferable. The licensee shall not grant a sub license or lease the channel / broadcast service in whole or in part. c) The licensor shall not either directly or indirectly assign or transfer its rights ....
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....ed 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 Phase 1 who have actually operationalised their channels, provided they have paid all their dues from the due date (after allowing for certain condonation of delay in the case of Delhi, Kolkata and Chennai due to problems of co-location) up to the cut-off date, and are not in default of any other license conditions till the date of migration to Phase 2. 4. The cut-off date for automatic migration to Phase 2 shall be taken as April 1, 2005. All payments made by operationalised license holders of Phase 1 in excess of amounts due till the cut-off date, shall be given credit and adjusted against their One-time Entry Fee (OTEF) for P....
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....uced 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 the transfer 21. Before coming to the first condition of section 35ABB(2), we hold that license is a capital asset in view of the decision of Honourable Delhi high court in CIT V Bharti Hexacom Limited ITA no 1336 of 2010 dated 19/12/2013 where in it is held that license is a capital asset. Now we come to the first condition of 35ABB (2) which provides that there should be transfer of the license. We have carefully seen the agreement dated 27th October 2000 between GOI and the assessee. According to Article 4 of Schedule C containing terms and conditions provides as under: Article-4 PROHIBITION OF CERTAIN ACTIVITIES 4.1 The Licence is non- transferable. The License shall not grant a sub- license or lease ....
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....ed 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 modified terms and conditions. Needless to say that as there is only changes in the terms and conditions of the existing license, there is no question of any 'proceeds" of the transfer as envisaged u/s 35ABB (2) of the act. We are also not persuaded to the argument of AR of the assessee meaning of words 'Migrate' and transfer' should be perused in ordinary sense and they are synonymous because of the reason that agreement itself prevents assessee from transferring license or any rights there in and set of policies of government are allowing it to migrate to different methodology of payment of fees to government. 23. Before us also Assessee has relied up on several judgments of various courts as under:- a. CIT V Nara....
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....tted 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 of license of assessee from phase-I to phase-II is just modification of terms and conditions of the license and these modification cannot be said that old license granted to assessee in phase-I has ceased or not in force. Therefore we are unable to persuade ourselves that the terms of licence granted in Phase-I has come to an end. In our view terms and conditions of license has been modified in above manner and tenure of the same is also extended and license granted in Phase-II is not independent of license granted to assessee in Phase-I. Therefore the claim of the assessee for deduction of above sum u/s 35ABB (1) is also not correct. 27. Now the issue arises that whether the amount of unallowed capital expenses paid by the assessee under phase-I policy is a capital loss or whether such a sum is allowable to the assessee. According to....
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....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 it relates to amortization of expenses. Accordingly, I find that section 35ABB(2) has no application to the facts of appellant's case, and hence the appellant's claim for deduction of the entire remaining license fee expenditure of Rs. 12,65,82,440/- during this year is rejected. 5.8 However, from the Govt. Policy document dated 13.07.2005 as pointed by the ld. AR, it is found that the FM licensees in Metro cities were eligible to opt for migration to Phase-II license only if they had paid all their license fee dues under Phase-I license regime as were applicable till the cut-off date of 01.04.2005. In this connection, relevant portion under the heading "Migration to Phase 2" from such Policy document dated 13.07.2005 are reproduced as under: "Automatic migration shall be considered for only those license holders of Phase-I who have....
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....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 charge, the assessee was granted a license during FY 1995-96 by the Department of Telecommunications, Govt, of India for a period of 10 years for operating telecommunications services. For acquiring the above license, the appellant had paid a fixed license fee during financial years 1995-96 to 1999-2000. The business actually commenced in the month of February 1997. The assessee claimed deduction on account of the above license fee in its return of income from AY 1997-98 to 1999-2000 as per the provisions of section 35ABB by amortizing the license fee over 10 years which was allowed by the Department in all the years. Subsequently the Department of Telecommunications, Govt, of India vide its letter no. 842-47/2000-VAS(Vol. IV) dated 05.10.2000 extended the period of above license from 10 years to 20 years and confirmed migration from Fixed » License Fee regime to Revenue Sharing regime w.e.f. 01.08....
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....erred 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 allowed the claim of the assessee on proportionate basis from remaining years of license, the claim of the assessee cannot be accepted. Hence we reject ground no. 2 of the appeal of assessee. 30. Ground No 3 of the appeal of assessee is against interest income as declared at Rs. 38,41,383/- ought to have been assessed as business income and not under the head "income from other sources. Before us LD AR submitted that part of the income of the interest is earned because of the amount was necessarily required to be kept by the assessee under lien of issuing bank guarantee to the Ministry of Information and Broadcasting. Ld. DR submitted that bank interest is chargeable to tax in the hands of the assessee under the head of 'other sources' only. 31. We have considered the rival submission as well as o the orders of lower authorities on the issue. Before CIT(A) the details of such interest income was not furnis....