Income Tax Appellate Tribunal - Delhi
Vodafone Mobile Services Ltd., New ... vs Dcit, New Delhi on 15 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'D' : NEW DELHI)
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER
and
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.4217/Del./2013
(ASSESSMENT YEAR : 2000-01)
Vodafone Mobile Services Ltd., vs. DCIT,
(formerly known as Vodafone Essar Circle 12 (1),
Mobile Services Ltd.), New Delhi.
C - 48, Okhla Industrial Area, Phase-II,
New Delhi - 110 020.
(PAN : AAACS4457Q)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : S/Shri Salil Kapoor & Aseem
Grover, CAs and Ms. Ishita
Farsaiya, Advocates
REVENUE BY : Shri Vijay Verma, CIT DR
Date of Hearing : 05.12.2017
Date of Order : 15.01.2018
ORDER
PER KULDIP SINGH, JUDICIAL MEMBER :
The Appellant, M/s. Vodafone Mobile Services Ltd. (hereinafter referred to as 'the assessee company') by filing the present appeal sought to set aside the impugned order dated 13.05.2013 passed by the Commissioner of Income-tax (Appeals)- 2 ITA No.4217/Del/2013 19, New Delhi qua the assessment year 2000-01 on the grounds inter alia that :-
"On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax Appeals - XIX, New Delhi ('learned CIT(A)') has erred in passing an order under section ('u/s') 250 of the Income Tax Act, 1961 ('Act'), partly confirming the order passed by the Deputy Commissioner of Income Tax, Circle 12(1), New Delhi ('learned AO') in the order passed u/s 143(3) for the subject A Y. Ground No. 1- Disallowance of license fee u/s 37(1) of the Act 1.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned AO that the annual revenue share based license fee of INR 516,037,612, payable by the Appellant to Department of Telecom (DoT) qualifies as a capital expenditure being consideration for obtaining the telecom license and hence is amortisable u/s 35ABB of the Act.
Ground No. 2- Disallowance of loss incurred on diminution in value of investments
2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned AO in disallowing the claim for loss on account of diminution in value of investment in Optionally Fully Convertible Debenture ('OFCD') in Aircel Digilink Limited ('ADIL') amounting to INR 2,475,556,000.
Ground No. 3- Disallowance of payment made as guarantors
3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned AO in disallowing the guarantee payment of INR 283,626,000 by the Appellant to Department of Telecommunications ('DoT') under a guarantee given by the Appellant in the ordinary course of the Appellant's business.
Ground No. 4- Treating certain receipts/ waivers as income instead of capital receipts
4. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned AO in treating the amount of INR 52,934,650, being waiver of the amounts received on capital account, as income chargeable to tax in the year of waiver.3 ITA No.4217/Del/2013
4.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that the character of receipt is decided in law at the time of the receipt and that such character does not change by any subsequent event and hence merely because the amount is waived during the captioned year, what was originally received as a capital receipt does not lose its character and become a revenue receipt.
4.2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that the copy of the Foreign Inward Remittance Certificate ('FIRC') submitted by the Appellant clearly evidences that the purpose of remittance was 'collateral against facilities', thereby substantiating that the receipt was capital in nature.
Ground No.5- Levy of penalty U/S 271(1)(c) of the Act
5. On the facts and in the circumstances of the case and in law, the learned AO has erred in initiating penalty u/s 271(1)(c) of the Act on the disallowances/additions made in the assessment order for the subject A Y."
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessing Officer disallowed an amount of Rs.52,29,51,303/- being the amount debited by the assessee company in P&L account as the claim made by the assessee company under section 35ABB of the Income-tax Act, 1961 (for short 'the Act'). The AO proceeded to decide that since the payment of licence fee is a capital expenditure the claim for deduction as revenue expenditure is not allowable. AO also disallowed the claim for loss on account of diminution in the investment in Optional Fully Convertible Debentures (OFCD) in Aircel Digilink Ltd. (ADIL) to the tune of Rs.247,55,56,000/- on the ground that neither application money for OFCD was a revenue 4 ITA No.4217/Del/2013 expenditure nor this sum was incurred wholly and exclusively for the purpose of business. AO further disallowed the guarantee payment of Rs.28,36,26,000/- by the assessee company to Department of Telecommunication (DoT) under the guarantee given by the assessee company in the ordinary course of its business on the ground that the corporate guarantee given by the assessee company is not an expenditure wholly and exclusively for the purpose of business nor the assessee company brought on record any evidence that it was not a mere provision and not a sum actually paid or incurred. Assessee company has claimed deduction of Rs.5,29,34,650/- as capital receipt in computation of income. AO disallowed the same on the ground that the assessee company has failed to submit the agreement, copy of agreement or the receipt of this sum or the waiver of liability by the Swisscom and as such, the exact amount of the said receipt is not clear.
3. Assessee carried the matter by way of filing appeal before the ld. CIT (A) who has partly upheld the assessment order by partly allowing the appeal. Feeling aggrieved, the assessee company has come up before the Tribunal by challenging the impugned order passed by ld. CIT (A).
4. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and 5 ITA No.4217/Del/2013 orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUND NO.1
5. Ld. AR for the assessee company contended that this issue is covered in favour of the assessee company in case cited as CIT vs. Bharti Hexacom Ltd. - (2013) 221 taxman 323 wherein the assessee company was one of the party.
6. Undisputedly, the assessee company is into the business of telecommunication services and value added related services and was awarded licence by the Government for telecommunication services initially under 1994 Agreement which was subsequently governed by new telecommunication policy effective from 31.07.1999. It is also not in dispute that the assessee company has paid licence fee after 31.03.1999.
7. Hon'ble High Court in CIT vs. Bharti Hexacom Ltd. (supra), wherein the assessee company is one of the party, as is evident from para 2 page 6 of the judgment, has categorically held that licence fee payable after 31.07.1999 should be treated as revenue expenditure. For ready perusal, the operative part of the judgment is reproduced as under :-
"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 6 ITA No.4217/Del/2013 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."
8. So, following the decision rendered by the Hon'ble High Court, we are of the considered view that AO/CIT (A) have erred in disallowing the amount of Rs.51,60,37,612/- being the capital expenditure amortized u/s 35ABB incurred for obtaining telecommunication licence from the DoT. So, the amount of Rs.51,60,37,612/- being revenue expenditure is ordered to be deleted. Consequently, ground no.1 is determined in favour of the assessee.
GROUND NO.2
9. AO/CIT (A) disallowed the claim for loss on account of diminution in value of investment in OFCD in ADIL to the tune of Rs.2,47,55,56,000/-. The ld. AR for the assessee company contended that this amount is on account of step down subsidy permitted in its object and made claim u/s 36 and alternatively u/s 37 of the Act.
10. Undisputedly, the assessee company has invested an amount of Rs.15,63,819/- in the equity of Karthik Financial Services Ltd. 7 ITA No.4217/Del/2013 (KFCL) and has also invested an amount of Rs.2,47,55,56,000/- in ADIL and gave corporate guarantee against guarantee facilities.
11. Ld. AR further contended that the assessee company's intention for investing in OFCD in ADIL for furtherance of its business since ADIL is also engaged in same business i.e. telecom business and utilized telecom licence in the area for which the assessee company did not have any licence. When the assessee company as well as ADIL was having the same licence to run telecom business then certainly revenue expenditure has been incurred wholly and exclusively for the purpose of business. So, when the ADIL has suffered persistent losses and value of the investment comes down to zero, the assessee company had no alternative except to write off the loss incurred on account of non- recoverability of any benefit qua funds placed at the disposal of ADIL. So, we are of the considered view that the funds invested was for commercial business expediency and are allowable u/s 37 of the Act being investment in the subsidiary company.
12. Hon'ble Supreme Court in S.A. Builders Ltd. vs. CIT, Chandigarh - (2007) 288 IT4 1 (SC) held that, "even when the expenditure has not been incurred under any legal obligation yet is allowable to be as business expenditure if it was incurred on ground of commercial expediency." So, in this case, we are of the 8 ITA No.4217/Del/2013 considered view that investment in the OFCD by the assessee company in its subsidiary to utilize the license of ADIL for telecom is certainly a commercial expediency and is allowable u/s 37 of the Act as contended in the alternative. So, ground no.2 is determined in favour of the assessee company.
GROUND NO.3
13. AO/CIT (A) have disallowed the guarantee payment of Rs.28,36,26,000/- by the assessee company to DoT under the guarantee given by the assessee company. The ld. AR for the assessee company contended that the guarantee amount invoked by the DoT is also a business expense allowable u/s 37(1) of the Act and relied upon the decision rendered by Hon'ble Chennai High Court in the case of CIT vs. Amalgamation (P.) Ltd. - 108 ITR 895, affirmed by Hon'ble Supreme Court in case of CIT vs. Amalgamation (P.) Ltd. - (1997) 226 ITR 188 (SC).
14. Undisputedly, the assessee company gave corporate guarantee facilities availed by the ADIL, its subsidiary, in favour of the DoT, and it is also not in dispute that ADIL suffered heavy losses exceeding share capital and consequently, the DoT terminated the licence of ADIL for Rajasthan and Haryana for 11 months and invoked the guarantee following which the bank has made a payment of Rs.28,36,26,000/- and consequently, the 9 ITA No.4217/Del/2013 assessee company has provided said amount to the bank which the bank provided to the DoT. The ratio of the judgment of Hon'ble Supreme Court in the case of CIT vs. Amalgamation (P.) Ltd. (supra) is that, "loss incurred by the assessee on account of furnishing of guarantees to its subsidiary company is a business loss and as allowable business expenses." So, following the aforesaid decision rendered by Hon'ble Supreme Court, we are of the considered view that the amount of Rs.28,36,26,000/- is an allowable expenditure. So, ground no.3 is determined in favour of the assessee company.
GROUND NO.4
15. AO/CIT (A) have treated the amount of Rs.5,29,34,650/- being the waiver of the amount received on capital amount as income chargeable to tax in the year of waiver. At the very outset, it is fairly conceded that copy of agreement to prove the receipt of the amount from Swisscom or the waiver of the liability by Swisscom has not been brought on record by the assessee company to work out the exact nature of consideration for which amount in question was received from the Swisscom. So, in the given circumstances, we are of the considered view that let the assessee company produce copy of settlement deed entered into between the Swisscom and the assessee company in order to decide the nature 10 ITA No.4217/Del/2013 of the consideration for which the amount in question was received. Consequently, this issue is set aside to the file of AO to decide afresh after providing an opportunity of being heard to the assessee company.
GROUND NO.5
16. Ground No.5 being premature needs no findings at this stage.
17. Resultantly, the appeal filed by the assessee company is allowed for statistical purposes.
Order pronounced in open court on this 15th day of January, 2018.
Sd/- sd/-
(R.K. PANDA) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 15th day of January, 2018
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-IX, New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.