TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 1105
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....010, 114/2012 and 996/2011 (consolidated order) dated 19.12.2013 on the very same issue and which is still pending adjudication before the Supreme Court. 2. Whether Ld. CIT(A) has erred on question of law and the facts and circumstances of the case by deleting the addition made by AO on account of disallowance of subscriber verification penalty by ignoring the fact that Revenue has filed appeal before the Hon'ble ITAT against the above decision of CIT(A) in AY 2012-13, AY 2013-14 and AY 2014-15 and AY 2015-16 which is still pending adjudication. 3. Whether Ld. CIT(A) has erred on question of law and the facts and circumstances of the case by deleting the disallowance under section 40(a)(ia) representing free airtime given as discount to the distributors on maximum retail price of prepaid coupons ignoring the fact that further appeal u/s 260A was recommended and appeal before Hon'ble Delhi High Court was filed in assessee's own case for A. Y.2004-05, 2005-06, 2006-07 and 2008-09 against the orders of the Hon'ble ITAT (Composite order in ITA Nos. 1623/D/2013 (for A. Y. 2004-05) & 1624/Del/2013 (for A.Y.2005-06) Dated: and 26.07.2016 Nos.3394/D/2012(f....
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....Ys. 2003-04 to 2009-10 deleted the license fee and spectrum charges which are amortized by the AO u/s. 35ABB, and allowed as revenue expenditure. The Learned CIT(A) also deleted the disallowance made by the AO in respect of subscriber verification penalty by following various decisions. The Ld. CIT(A) also deleted the disallowance made by the AO u/s. 40(a)(ia) in respect of discount allowed by the assessee to prepaid card distributors following the decision of the Hon'ble Karnataka High Court and also the decision of Guwahati Bench of Tribunal in assessee's case for A.Y. 2006-07 to 2010-11 in ITA No.258 to 262/Gau/2013 dated 29.06.2015. 8. The learned Senior Counsel for the assessee Shri Ajay Vohra appearing for the Assessee, at the outset, submitted that in so far as license fee is concerned (other than spectrum usage charges SUC) the issue is covered against the assessee by the Hon'ble Supreme Court in the decision of CIT Vs. Bharti Hexacom Ltd., in assessee's own case reported in 458 ITR 593 which is placed at pages 283 to 411 of paper book and in view of this decision of Hon'ble Supreme Court he submits that the license fee is thus required to be amortized as per section 35A....
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.... is placed at pages 272-282. Referring to these decisions the Learned Counsel for the assessee submitted that the Tribunal deleted the disallowance made u/s.37(1) in respect of subscriber verification penalty observing that the disallowance of expenditure made by the AO is in relation to penalty paid to the department of telecom for violation of KYC norms and that the payment made for violation of KYC norms could not fall within the ambit of Explanation 1 to Section 37(1) of the Act. 12. Coming to discount on prepaid instruments i.e. the disallowance under Section 40(a)(ia) for non deduction u/s. 194H of the Act, the Learned Counsel for the assessee submitted that the issue is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Bharti Cellular Ltd. Vs. ACIT (2024) 160 taxmann.com 12 wherein the Hon'ble Apex Court held that no TDS u/s. 194H of the Act is applicable on such discounts. The Ld. Counsel further stated that the issue is also decided by the Tribunal in assessee's own case for the A.Y.'s 2013-14 to 2015-16 in ITA No. 3522/Del/2019 dated 16.06.2023 and ITA No. 6547 and 6548 /Del/2019 dated 19.07.2023. 13. On the other hand the....
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....haracterization merely because of change in the manner of the payment. The High Court is not right in apportioning the expenditure partly as capital expenditure and partly as revenue expenditure. In view of the above, the one-time entry fee as well as the variable annual license fee paid by the taxpayer under the Policy of 1999 are capital in nature and will be amortized in accordance with section 35ABB of the Act. 16. Heard rival submissions, perused the orders of the authorities below and the case laws relied on. 17. Ground No.1 of the grounds of appeal raised by the revenue with regard to license fee and the spectrum charges is as under :- "1. Whether Ld. CIT(A) has erred on question of law and the facts and circumstances of the case by allowing the license fee on revenue sharing basis after July 31, 1999 to be treated as revenue expenditure ignoring the fact that Revenue has filed SLP before Hon'ble Apex Court against the order of Hon'ble Delhi High Court for A. Y.2003-04, 2004-05, 2006-07 and 2007-08 in ITA Nos. 1328/2010, 1336/2010, 114/2012 and 996/2011 (consolidated order) dated 19.12.2013 on the very same issue and which is still pending adjudication....
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....ure and part to be revenue expenditure. The Hon'ble Delhi High Court had held that the license fee payable up to 31 July 1999 should be treated as capital expenditure which is to be amortised under section 35ABB of the Act, and the variable annual license fee payable on revenue sharing basis after 1 August 1999 should be treated a revenue expenditure and in that context only the Hon'ble Supreme Court had examined the agreement signed under the Policy of 1994 letter issued by the DOT proposing the migration to the Policy of 1999 and the amendments made to the existing license agreement with effect from 1 August 1999 and laid down that variable annual license fee to be paid on the basis of the annual gross revenue. It was held that the reliance placed by the Hon'ble High Court in cases of Jonas Woodhead and Sons India Limited v. CIT 91 Taxman 1/224 ITR 342 (SC)(SC); CIT v. Best and Co [1966] 60 ITR 11 (SC); Southern Switch Gear Limited v. CIT 232 ITR 359 (SC) was misplaced, as these cases do not deal with a single source or purpose to which the payments in different forms have been made. The purpose of the payments in the said case was traceable to different subject matte....
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....irst three years of the license regime and a variable payment from the fourth year of the license regime onwards based on the number of subscribers and subject to prescribed of 1994 were treated as capital and were duly amortised. There is no basis of reclassifying the under the new Policy of 1999. The nature of payment that was made for the same purpose cannot have different characterization merely because of change in the manner of the payment. The High Court is not right in apportioning the expenditure partly as capital expenditure and partly as revenue expenditure. In view of the above, the one-time entry fee as well as the variable annual license fee paid by the taxpayer under the Policy of 1999 were held capital in nature and were to be amortised in accordance with section 35ABB of the Act. It is pertinent to mention that these very findings have been considered by the PCIT and reproduced on page 87 of the impugned order and have been made basis to form a different opinion, as formed by AO. 10.6 We are of considered view that aforesaid conclusions in Bharti Hexacom's case (supra), have been considered out of context by the PCIT thus there was inherent fallibility....
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....telegraphy equipment as per the details prescribed by Wireless Planning & Coordination Wing (WPC). Any additional band width, if allotted subject to availability and justification shall attract additional License fee as revenue share (typically 1% additional revenue share if Bendwidth allocated is upto 6.2 MHz 6.2 MHz in place of 4.4 MHz + 4.4 MHz). 18.3.2 Further, royalty for the use of spectrum for point to point links and access links (other than Cellular Service Spectrum) shall be separately payable as per the details and prescription of Wireless Planning & Coordination Wing. The fee/royalty for the use of spectrum /possession of wireless telegraphy equipment depends upon various factors such as frequency, hop and link length, area of operation etc. Authorization of frequencies for setting up Microwave links by Cellular Operators and issue of Licenses shall be separately dealt with WPC Wing as per existing rules 18.3.3 The above spectrum charge is subject to unilateral review by WPC Wing from time to time which shall be binding on the licensee. 19. Definition of 'Adjusted Gross Revenue': 19.1 Gross Revenue : The Gross Revenue....
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....um payment equal to the actual revenue share paid of the previous quarter. 20.3 The LICENSEE shall adjust and pay the difference between the payment made and actual amount duly payable (on accrual basis) for the last quarter of financial year within 15 days of the end of the quarter. 20.4 The quarterly payment shall be made together with a STATEMENT in the prescribed fu Kamb STATEMENTS of each year shall be required to be audited by the Auditors (hereinafter called LICENSEE'S Auditors) of the LICENSEE appointed under Section 224 of the Companies Act, 1956. Th report of the Auditor should be in prescribed form as Annexure-IL. 20.5 Any delay in payment of License Fee payable, or any other dues payable under the LICENSE beyond the stipulated period will attract interest at a rate which will be 5% above the Prime Lending Rate compounded monthly and a part of the month shall be reckoned as a full month for the purposes of became due. The interest calculation of interest. A month shall be reckoned as an English calendar month 20.6 Final adjustment of the License fee for the year shall be made based on the gross revenue figures duly certified by the....
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....rest and penalty clauses are enshrined in the license agreement as compensatory mechanism for delayed payment of three components i.e entry fee, license fee and charges. Charges is not specifically defined but when we take into consideration the aforesaid clauses we find that apart from entry fee and license fee the Licensee was supposed to pay Radio Spectrum Charges and royalty for the use of spectrum for point to point links and access links. These charges admittedly were considered as revenue expenditure. Thus sub clause 10.2 mentions that for delayed payment of fee and other charges due to this provision of clause of termination of license can be invoked. It is very much apparent from the clause of license agreement that the interest is payable on the quantum of delayed payment of license fee determined as per the license agreement. Penalty is payable in case the total amount paid as quarterly License Fee for the 4 (four) quarters of financial year, falls short by more than 10% of the payable License Fee. Delayed payment of penalty shall also be liable to interest. 21. We also further observed that Delhi Bench of ITAT in the case of CIT Vs. Vodafone West India Ltd. (supra) b....
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....omputing the business income. However, Explanation 1 to said section carves out an exception by providing that any expenditure incurred by an assessee for a purpose, which is an offense or which is prohibited by law, shall not be allowed as deduction. Therefore, it needs to be examined whether penalty paid for violation of KYC norms falls within the purview of expenditure incurred towards an offense or is prohibited by law. 11. Before us, learned Departmental Representative has furnished certain circulars/guidelines issued by the Department of Telecommunication, Government of India. As could be seen from the documents furnished before us, one of the conditions of the license agreement between the Department of Telecommunication and the service provider/licensee, is that the licensee shall ensure adequate verification of each and every customer before enrolling him as a subscriber and instructions issued by the licensor in this regard, from time to time, shall be scrupulously followed by the licensee. One more condition of the license agreement is, the licensor may also impose financial penalty for violation of terms and conditions of license agreement. 12....
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....t held as under :- "39. Coming back to the legal position of a distributor, it is to be generally regarded as different form that of an agent. The distributor buys goods on his account and sells them in his territory. The profit made is the margin of difference between the purchase price and the sale price. The reason is, that the distributor in such cases is an independent contractor. Unlike an agent, he does not act as a communicator or creator of a relationship between the principal and a third party. The distributor has rights of distribution and is akin to a franchisee. Franchise agreements are normally considered as sui generis, though they have been in existence for some time. Franchise agreements provide a mechanism whereby goods and services may be distributed. In franchise agreements, the supplier or the manufacture, i.e. a franchisor, appoints an independent enterprise as a franchisee through whom the franchisor supplies certain goods or services. There is a close relationship between a franchisor and a franchisee because a franchisee's operations are closely regulated, and this possibly is a distinction between a franchise agreement and a distributorship ag....
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....n. Facts being identical, respectfully following the decision of the coordinate Benches in assessee's own cases as well as the Hon'ble Rajasthan High Court, we hold that the provisions of section 194H are not applicable to the discounts given to the distributors. Therefore, we do not find any infirmity in the decision of learned first appellate authority in deleting the disallowance made u/s. 40(a)(ia) of the Act. Ground raised is dismissed." 27. Respectfully following the above said judgments ground No. 3 of grounds of appeal of the revenue is rejected. ITA No.1111/Del/2023 (A.Y.2017-18) 28. In this appeal the revenue has raised following grounds of appeal :- 1. Whether Ld. CIT(A) has erred on question of law and the facts and circumstances of the case by allowing the license fee on revenue sharing basis after July 31, 1999 to be treated as revenue expenditure ignoring the fact that Revenue has filed SLP before Hon'ble Apex Court against the order of Hon'ble Delhi High Court for A.Ys.2003-04, 2004-05, 2006-07 and 2007-08 in ITA Nos. 1328/2010, 1336/2010, 114/2012 and 996/2011 (consolidated order) dated 19.12.2013 on the very same issue and which i....
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....ct on remaining income. The assessee contended before the Ld. CIT(A) that National Faceless Assessment Centre has erred both on facts and in law in not allowing the corrected deduction u/s.80IA including on variation of its income on account of disallowances pertaining to undertaking North East circle. The Ld. CIT(A), since disallowance made u/s. 40(a)(ia) was deleted by him, he has directed the AO to verify and allow deduction u/s.80IA of the Act on the enhanced income, which was originally disallowed by the AO on account of disallowance made u/s.40(a)(ia) of the Act. We see no infirmity in the order passed by the Ld. CIT(A) and, therefore, reject ground No.3 raised by the revenue. ITA No. 1112/Del/2023 A.Y. 2018-19 32. The revenue has raised following grounds of appeal :- 1. Whether Ld. CIT(A) has erred on question of law and the facts and circumstances of the case by allowing the license fee on revenue sharing basis after July 31, 1999 to be treated as revenue expenditure ignoring the fact that Revenue has filed SLP before Hon'ble Apex Court against the order of Hon'ble Delhi High Court for A. Υ.2003-04, 2004-05, 2006-07 and 2007-08 in ITA Nos. 132....
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....duction of TDS u/s. 194H on discount given to distributors, and the decision taken therein shall apply mutatis mutandis to the appeal for the A.Y. 2018-19. We order accordingly. ITA No. 1113/Del/2023 A.Y. 2019-20 36. The revenue has raised following grounds of appeal :- 1. Whether Ld. CIT(A) has erred on question of law and the facts and circumstances of the case by allowing the license fee on revenue sharing basis after July 31, 1999 to be treated as revenue expenditure ignoring the fact that Revenue has filed SLP before Hon'ble Apex Court against the order of Hon'ble Delhi High Court for A. Y.2003-04, 2004-05, 2006-07 and 2007-08 in ITA Nos. 1328/2010, 1336/2010, 114/2012 and 996/2011 (consolidated order) dated 19.12.2013 on the very same issue and which is still pending adjudication before the Supreme Court. 2. Whether Ld. CIT(A) has erred on question of law and the facts and circumstances of the case by deleting the disallowance under section 40(a)(ia) representing free airtime given as discount to the distributors on maximum retail price of prepaid coupons ignoring the fact that further appeal u/s 260A was recommended and appeal before Hon'b....