$~2, 45 & 46
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on 23rd March, 2015
+ ITA 799/2014
COMMISSIONER OF INCOME TAX (CENTRAL)-III
..... Appellant
versus
MICROWAVE COMMUNICATIONS LTD.
..... Respondent
+ ITA 1738/2010
+ ITA 1739/2010
CIT
..... Appellant
versus
MICROWAVE COMMUNICATIONS LTD
..... Respondent
Presence : Ms. Suruchi Aggarwal, sr. standing counsel for the revenue
Ms. Poonam Ahuja and Mr. Rohit Kumar Gupta, Advs. for the
assessee
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K.GAUBA
MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
%
1. Admit.
2. Ms. Poonam Ahuja, Advocate accepts notice.
3. With consent of the counsel the matter was finally heard.
4. The revenue urges that the interest on payment qua the license fee,
could not be amortised in view of Section 35ABB of the Income Tax Act.
ITA 799/2014 & conn.
Page 1
In other words, the question is whether the licence fee payable by telecom
service providers to the Department of Telecommunications is to be treated
as capital or revenue expenditure. It is not disputed that this issue was
considered by Division Bench of this Court in judgment reported as
Commissioner of Income Tax V. Bharti Hexacom (2014) 221 Taxman 323
(Del.). The findings of the said judgment and the operative directions are in
the following terms :
"47. In view of the aforesaid findings, the substantial question
mentioned above in item Nos.1 to 9 is answered in the following
manner:
(i) The expenditure incurred towards licence fee is partly
revenue and partly capital. Licence fee payable upto 31st July,
1999 should be treated as capital expenditure and licence fee on
revenue sharing basis after 1st August, 1999 should be treated as
revenue expenditure.
(ii) Capital expenditure will qualify for deduction as per Section
35ABB of the Act.
48. The appeal ITA No. 417/2013 by the Revenue in the case of
Hutchison Essar Pvt. Ltd., pertains to the assessment year 1999-
2000 i.e. year ending 31st March, 1999. It is for the period prior
to the period 31st July, 1999. As per the discussion above, the
licence fee payable on or before 31st July, 1999 should be treated
as capital expenditure and the licence fee payable thereafter
should be treated as revenue expenditure. In view of the aforesaid
position, the question of law admitted for hearing in this appeal as
recorded in the order dated 21st August, 2013, has to be answered
in favour of the revenue and against the respondent assessee.
49. In ITA Nos.893/2010 and 1333/2010, an additional issue
arises for consideration. This additional issue relates to interest
on delayed payment of license fee and whether the same was
capital or revenue expenditure. By order dated 18th September,
ITA 799/2014 & conn.
Page 2
2012, the following substantial question of law was admitted for
hearing and disposal:-
Whether the Tribunal fall into error in holding
that the interest on the delayed payment of license
fee also partook of the same nature as license fee
and was deductible as revenue expenditure?
50. We are inclined to pass an order of remand on this question
as we find that the facts on the said aspect are not lucid and clear.
In the assessment-year 2000-01, the assessment year subject
matters of ITA 893/2010 and 1333/2010 in the case of Bharti
Cellular Ltd. and Bharti Telenet Ltd. now known as Bharti Infotel
Ltd., the assessee had paid interest of Rs.1.75 crores and Rs.2.24
crores to the Department of Telecommunication for delayed
payment of license fee. The Assessing Officer disallowed the said
payments observing that these were on capital account. The
assessment order records that no details had been furnished and
the expenses pertained to prior period. The payment was
considered to be capital in nature because the license fee was also
capital expenditure.
51. Commissioner (Appeals) in the case of Bharti Cellular Ltd.
(ITA 893/2010) held that interest paid was capital expenditure
because license fee itself was capital in nature. The said opinion
was followed by Commissioner (Appeals) in the case of Bharti
Telenet Ltd., now known as Bharti Infotel Ltd. The answer to the
question would depend upon the finding whether payment related
to license fee payable period prior to 31st July, 1999 or was for
the subsequent period. If interest paid was in respect of license fee
payable for the period prior to 31st July, 1999, it will have to be
capitalised. Similarly, if the interest was payable on license fee for
the period post 31st July, 1999, it should be treated as revenue in
nature/character. The contention that it was a prior period
expense does not appeal to us and has to be rejected, as the
interest was paid during the year in question.
52. Learned counsel for the assessees has submitted that there
cannot be any factual dispute that this interest was paid to the
ITA 799/2014 & conn.
Page 3
Department of Telecommunication on delayed payment of license
fee under the 1999 policy and not on account of license fee
payable for period prior to 31st July, 1999. We cannot from the
facts on record, decipher the exact details as this aspect has not
been examined by the tribunal. The tribunal has held that interest
paid was revenue in nature because the license fee payable itself
was revenue in nature, irrespective of fee payable prior to 31st
July, 1999. We have held to the contrary. The said question of law,
therefore, is answered in favour of the Revenue and against the
respondent-assessee but with an order of remand to decide the
controversy afresh keeping in view the observations made above."
5. The questions of law urged by the revenue are therefore covered in
terms of the above judgment which the Court follows. The matter is
accordingly remitted to AO, who shall pass appropriate orders in the light of
the directions contained in para 51 and 52 (extracted above). The question
of law is decided in favour of the revenue. The appeals are partly allowed.
S. RAVINDRA BHAT
(JUDGE)
R.K.GAUBA
(JUDGE)
MARCH 23, 2015
vld
ITA 799/2014 & conn.
Page 4
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