Indian Kanoon - Search engine for Indian Law

4. Ground No. 4 --Disallowance of annual revenue shares based license fee 4.1 On the facts and circumstances of the case and in law, the learned AO/ Hon'ble DRP has erred in disallowing an amount of Rs 23,10,71,248 by holding that annual license fee is not allowable as a revenue expenditure and it should be amortised under section 35ABB of the Act.

4.2 On the facts and circumstances of the case and in law, the learned AO/Hon'ble DRP has erred in not following the binding judgment of the Hon'ble jurisdictional Delhi High Court, which has unequivocally and unanimously held that annual revenue share based license fee paid by the telecom operators is revenue expenditure, allowable under section 37(1) of the Act and not a capital expenditure amortizable under section 35ABB of the Act.

17. The fourth ground of appeal is with respect of disallowance of annual revenue shares based license fee. During the Financial Year 2009-10, the Appellant incurred expense of Rs. 24.55 crores towards revenue share based license fee for maintenance and usage of the telecom license payable to the Department of Telecom (―DoT‖). It was submitted that the assessee acquired the telecom licenses in the Financial Year 2006-07 by way of agreements with the Department of Telecom (―DoT‖), keeping in view with the New Telecom Policy (‗NTP') of 1999 separately for telecommunication services rendered under the NLD, ILD and ISP line of services. Apart from the above, it was submitted by the appellant that a license holder is required to pay recurring fee on a periodic basis towards maintenance and use of the license which for the FY under consideration was Rs. 24.55 crores which is payable on a quarterly basis. Further, the appellant company also submitted that a one time entry fee of Rs. 5 Crores (Rs. 2.50 Crores towards ILD License and Rs. 2.50 Crores towards NLD License)was paid by the Appellant in the Financial Year 2006- 07 was duly capitalized in its books of accounts and is being amortized as per the provisions of Section 35ABB of the Act. The main contention of the appellant is that the sum of Rs 24.55 crores paid by the Appellant during the Financial Year 2009-10 towards revenue share based license fee incurred for maintenance and usage of the telecom license is allowable u/s 37(1) of the Act. It was submitted by the appellant that this very issue of allowability of the revenue based license fees u/s 37(1) of the Act was a subject matter of dispute and the Hon'ble Delhi High Court had the occasion to look into this aspect and hold in favour of the telecom company in the case of CIT vs. Bharti Hexacom Limited [2014] 265 CTR 130 (Delhi). In the said decision, the Hon'ble Delhi High Court has held the revenue share based license fee is an 13 | P a g e AT & T Global Network Services ( India) Private Limited V DCIT , Circle -2 (1) New Delhi ITA 1059 Del 2015 (A) & ITA No 1778/Del/2015 (D) AY 2010-11 allowable revenue expenditure u/s 37(1) of the Act. At this stage it is important to note that the Appellant relied upon this decision before the Ld. AO and the DRP, however, the same was not favorably considered merely for the reason that the Revenue has filed a Special Leave Petition before the Hon'ble Supreme Court of India against this favourable ruling of the Delhi High Court. Further the assessee also submitted that the license fees has been allowed by the DRP in the subsequent year.The AO disallowed the Appellant's claim of revenue share based license fee as an allowable expense u/s 37(1) of the Act on the premise that the same is liable to be amortized as per the provisions of Section 35ABB of the Act over the remaining life of the license (17 years). Thus, a deduction for the proportionate claim of Rs. 23.11 crores (24,55,13,201 x 16/17) has been disallowed. The ld AO has capitalized the annual revenue share based license fee merely on the basis that the revenue department has filed a Special Leave Petition against the order of the Hon'ble Delhi High Court in the case of CIT vs. Bharti Hexacom Limited [2014] 265 CTR 130 (Delhi), which is squarely applicable to the Appellant's case and to keep the issue alive The AO in the draft assessment order made the following findings:

19. The AR during the course of hearing, submitted as under :

5.1. It is the basic and fundamental submission of the Appellant that the annual revenue share based license fee incurred by the appellant is a business expenditure allowable u/s 37 of the Act. Such expenditure has been incurred by the Appellant towards maintenance and usage of the telecom 15 | P a g e AT & T Global Network Services ( India) Private Limited V DCIT , Circle -2 (1) New Delhi ITA 1059 Del 2015 (A) & ITA No 1778/Del/2015 (D) AY 2010-11 license, and not for acquiring a right to operate telecommunication services and thus would not attract the provisions of Section 35ABB of the Act.

5.3. It is submitted that the action of the Ld. AO in applying the provisions of section 35ABB is grossly erroneous and liable to be reversed for the elementary reason that Section 35ABB applies only where an assessee incurs a capital expenditure for obtaining/ acquiring any right to operate telecommunication services. Thus, if the expenditure is not for obtaining or acquiring any right and also it is not in the nature of a capital expenditure, section 35ABB of the Act is not applicable. The relevant extracts of Section 35ABB of the Act is as under: