TaxTMI 
TaxTMI 
2020 (2) TMI 322
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....f the Act nor the CBDT Circular No. 783 dated 18.02.1998 are applicable to NLD License, as it does not confer right to operate telecommunication services. The grounds raised by the assessee read as under: - A. Disallowance of Interest earned Rs. 1,51,89,429 1) The learned CIT(A) failed to appreciate that the Appellant was entitled to capitalize the interest earned of Rs. 1,51,89,429 on fixed deposit being margin Money for giving bank guarantee towards the license given by Dot for Telecom Project. 2) Without prejudice to the above Ground of appeal for having treated the interest receipt of Rs. 1,51,89,429/- on the Fixed Deposits/Margin Money as taxable business receipts, the learned CIT(A) failed to appreciate that he ought to have allowed deduction of interest cost of Rs. 55,95,43,450/- being paid in respect of capital borrowed for the purpose of appellant business in terms of section 36(iii) of the Income Tax Act, 1961 though capitalized by the appellant in the books of account and not doing so is wrong and contrary to the provisions of the Act, and the Rules made there under." 2. We have carefully heard the rival submissions, perused relevant mate....
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....was denied. 4.3 Before Ld. CIT(A), the assessee again placed reliance on the stated decision of Hon'ble Bombay High Court as well as CBDT circular No. 763 dated 18/02/1998 which had explained the provisions of Sec.35ABB of Income Tax Act, 1961. It was submitted that the assessee fulfilled all the conditions laid down in the said circular. The attention was also drawn to the fact that the assessee never claimed depreciation on NLD license u/s 32 of the Act. In the above background, it was pleaded that the deduction of Rs. 2.5 Crores would be allowable in entirety u/s 35ABB(2). 4.4 After due consideration, Ld. CIT(A) concurred with assessee's submissions with following observations: - 4.3 Decision- I have carefully considered both the A.O's order and the AR's submissions. The brief undisputed facts of the case are that the appellant had obtained an NLD license, such license being the license required for operating long distance i.e inter-city telephone services. E.g. if a phone has to be placed from Mumbai to New Delhi, the mobile operator would require an NLD license to be able put through the call. In such a case there would be no need for the mobile operato....
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....mount of Rs. 2.5 crores. 4.3.1 Coming to CBDT Circular no. 763 dated 18th February 1998, it is seen that this circular has explained the scope and effect of the then newly inserted provisions of section 35ABB of the Act inserted with retrospective effect from 1st April 1996. The relevant provisions of the same are as follows. "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 license, will be allowed as a deduction in equal instalments 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 -Iicense is transferred and the pro....
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....5ABB(2) for AY 2011-12 since the said surrender took place during the previous year relevant to AY 2011-12. Ground no. 1 is accordingly allowed. It is evident that Ld. CIT(A) has noted that NLD license was surrendered by the assessee since this license would become virtually redundant in view of the fact that the rights enjoyed under NLD license would be enjoyed under UASL licenses also and it was a prudent business decision to surrender the same to avoid penalty charges as well as yearly license fees for NLD license. In the process, the assessee lost the payment of Rs. 2.50 Crores already made by it to DOT and the assessee was not compensated for the same, in any manner. Therefore, the assessee would be eligible to claim the deduction of the same as per specific provisions of Sec.35ABB read with CBDT circular no. 763 dated 18/02/1998. Aggrieved, the revenue is under further appeal before us. 4.5 Upon due consideration of factual matrix as enumerated by us in the preceding paragraphs, we find that Ld. CIT(A) has clinched the issue in the correct perspective. The undisputed position is that the assessee has surrendered NLD license to DOT during the year and accordingly, wro....
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....partment of Telecommunication (DOT). The guarantees were required to be issued as per the requirement of licensing condition. The loan money was borrowed and used for setting up telecom infrastructure. Therefore, the receipts of interest on fixed deposits and margin money was inextricably linked with setting up of infrastructure for providing telecom services. Hence, the interest would be inextricably linked with borrowings and deductible from project expenses / borrowed costs. It was also submitted that in case money is borrowed in the course of setting up of project, the interest expenditure would be capitalized and added to the cost of the fixed asset created as a result of such expenditure. By the same reasoning, if assessee receives any amount which are inextricably linked with the process of setting up of project, such receipts will go on to reduce the project costs. Such receipts would, thus be capital in nature. Reliance was placed, interalia, on the decision of Hon'ble Supreme Court in the case of CIT v/s. Bokaro Steel Ltd. (1999 236 ITR 315) & CIT V/s Karnal Co-operative Sugar Mills Limited (243 ITR 2) and the decision of Hon'ble Bombay High Court rendered in CIT v. Ma....
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....circumstances, it is clear that it would not be possible to extend the benefit of treatment as capital receipt of the interest income received by the appellant on account of the fixed deposits placed with banks as mandated by the conditions laid down in UASL. This is so as it is clear that the business of the appellant has indeed commenced during the previous year relevant to the assessment year under consideration. The AO has clearly brought out this point in paragraph no. 5.3 on page no. 14. Before me the AR has also accepted it, tough he was unable to state the details of the telecom circles where no business operations had been then commenced. In these circumstances in the absence of any circle-wise bifurcation, after careful consideration, the entire disallowance of the AO is confirmed. Accordingly interest income of Rs. 1,51,89,429/- shall continue to form part of the assessed income of the appellant. Ground no. 4 is accordingly dismissed. It is however seen that the appellant has taken a small separate ground without prejudice as part of ground no. 4. Before me, I find that no submission whatsoever have been made with regard to this alternative ground which too is accordingl....