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6. Ground no. 2 raised by the Revenue is against the deletion of addition of Rs.17,47,28,068/- on account of Royalty WPC expenses.

ITA Nos.1950 & 1169/Del/2014

7. The facts of the ground are that the assessee claimed Royalty WPC expenses amounting to Rs.117.47 crore. On being called upon to justify such deduction, the assessee stated that this amount represent Spectrum charges paid by it to the Department of Telecommunications on quarterly basis as a percentage of revenue. It was submitted that every telecom operator in India, in addition to the initial operator licence fee, is required to pay spectrum royalty for the use of spectrum and microwave royalty for given microwave frequency usage on regular basis. It was further submitted that Royalty WPC was paid on revenue share basis at 2% of Adjusted gross revenue and the same was eligible for deduction. The AO treated such amount as a capital expenditure incurred to get the right to use spectrum and hence covered it under section 35ABB of the Act. After allowing depreciation @ 25%, he made an addition of Rs.61,85,57,975/-. The DRP ordered to delete the addition, against which the Revenue has come up in appeal before the Tribunal.

8. We have heard both the sides and perused the relevant material on record. It is observed that the AO invoked the provisions of section 35ABB for making the addition. This section, in turn, ITA Nos.1950 & 1169/Del/2014 provides that expenditure for obtaining licence to operate telecommunication services, in so far as it is of the nature of capital expenditure, shall be allowed as deduction for each of the relevant previous years on proportionate basis. It transpires that in order to be covered within the ambit of this provision, it is sine qua non that the expenditure for obtaining licence must be of capital nature at the first instance. If payment is in the revenue field, it goes out of purview of this provision. When we advert to the nature of royalty paid by the assessee, it clearly emerges that the same is in the nature of spectrum charges paid to Government of India as a percentage of revenue on regular basis. This payment is not meant for obtaining a licence to use spectrum, but for the actual use of it on regular basis. It is in the nature of a revenue expenditure eligible for deduction. Thus, it cannot be construed as a capital expenditure and thus goes out of the ken of section 35ABB. It is further noticed that similar issue was argued before the Tribunal in the aforesaid case of the assessee's sister concern, namely, Vodafone Mobile Services Ltd. After considering the relevant details, the Tribunal in para 14 of its order directed to delete the addition by relying on judgment of the Hon'ble ITA Nos.1950 & 1169/Del/2014 jurisdictional High Court in the case of CIT vs. FASCEL Ltd. 17 DTR 306 (2009). Since the facts and circumstances of the instant ground are mutatis mutandis similar to those considered and decided by the Tribunal in the case of Vodafone Mobile Services Ltd. (supra), respectfully following the precedent, we uphold the impugned order in deleting the disallowance. This ground fails.

13. The first ground of the assessee's appeal is against amortization of revenue-based licence fee. The assessee claimed deduction of Rs.205,38,20,412/- as revenue share of the licence fee debited in the Profit & Loss Account. Apart from that, the assessee also claimed deduction for a sum of Rs.18,74,66,473/- as amortisation of licence fee u/s 35ABB of the Act in the computation of income. On being called upon to explain as to why the sum of Rs.205.38 crore should not be treated as capital expenditure and, hence, amortized u/s 35ABB, the assessee submitted that as per the terms of the Licence agreement with the Department of Telecommunications and National Telecom Policy, 1999, the licence fee agreed with and paid up to the date of migration was treated as one time entry fee which was capitalised to be amortized u/s 35ABB. As regards the deduction of Rs.205.38 crore claimed during the year, the assessee submitted that it was a licence fee at specified percentage of the gross revenue derived by the assessee from its cellular business. It was reiterated that the ITA Nos.1950 & 1169/Del/2014 recurring licence fee was not for acquiring any telecommunication licence, but, for maintenance of licence to be paid to the Government of India in terms of the new Telecom Policy. The AO observed that the assessee paid such an amount to the Government of India, Department of Telecommunications in consideration of grant of licence to operate and provide the telecommunication services and the object was acquisition of licence. He observed that as against the amount of licence fee debited in the P&L Account on accrual basis to the tune of Rs.205.38 crore, the assessee made an actual payment of Rs.173.84 crore. He held that only such an amount paid was to be amortized over the remaining seven years of licence and, hence, the assessee would be eligible for deduction under this section at 1/7th of Rs.173.84 crore, which came to Rs.24.83 crore. The excess amount of Rs.180.54 crore (Rs.205.38 crore minus Rs.24.83 crore) was held to be not allowable. However, a deduction amounting to Rs.25,99,91,404/- was actually allowed u/s 35ABB in respect of amounts similarly treated as capital expenditure in earlier years. Thus, net addition of Rs.154,54,85,884/- was made. The assessee remained unsuccessful before the DRP as well and, eventually, ITA Nos.1950 & 1169/Del/2014 addition of Rs.154.54 crore was made in the impugned order, against which the assessee has approached the Tribunal.

14. After considering the rival submissions and perusing the relevant material on record, we find that the assessee entered into Licence agreement with Ministry of Communications on 28.12.1995 for Haryana Circle. Similar Licence agreements were entered into for Rajasthan and Uttar Pradesh (east) circles. The Haryana circle licence, along with the other two, was initially granted to the assessee for a period of ten years to establish, maintain and operate cellular mobile telephone service. A sum of Rs.240 crore was to be paid as Licence fee in terms of Condition no. 19 of the Licence agreement, a copy of which is placed from page 540 onwards of the paper book. The assessee was required to pay a sum of Rs.240.00 crore from 1995 up to the financial year 2000-01 as per the details given in the Agreement. Admittedly, the assessee paid this amount. However, new Telecom Policy, 1999 came into force, whose copy is available from page 578 onwards of the paper book. Under this new Policy, cellular mobile service providers (CMSPs) were required to pay a one-time entry fee. Apart from such one-time entry fee, CMSPs were ITA Nos.1950 & 1169/Del/2014 also required to pay a licence fee based on revenue share on regular basis. The assessee entered into agreement with Government of India under the new Policy on 19.11.2008, whose copy is available from page 589 onwards of the paper book. As per this Agreement, the effective date of licence was to continue as 12.12.1995. The duration of the licence was fixed as 20 years from the effective date. Part III of the Agreement contains financial condition. Clause 18.1 provides that: 'no additional entry fee shall be charged from CMSPs for migration to new policy.' Clause 18.2 provides that 'the licensee shall pay licence fee annually @ 8% of adjusted gross revenue (AGR) excluding spectrum charges and for the first four years w.e.f. 01.04.2004, annual licence fee payable shall be 6% of AGR.' Clause 18.3 of the Agreement provides that 'spectrum charges shall be 2% of the AGR.' While dealing supra with ground no. 2 of the Revenue's appeal, we have dealt with spectrum charges, which amount was paid by the assessee during the year to the tune of Rs.117.47 crore. However, in the instant ground, we are concerned with a sum of Rs.205.38 crore, being, the amount debited by the assessee in its Profit & Loss Account on accrual basis. The amount of Rs.205.38 ITA Nos.1950 & 1169/Del/2014 crore is different from the spectrum charges paid by the assessee to the tune of Rs.117.47 crore. We have noticed from financial conditions of the new licence Agreement which provides that 'there shall be no additional entry fee from CMSPs.' However, the licensees have been required to pay the licence fee annually @ 8%/6% on adjusted gross revenue excluding spectrum charges. It is this amount which has been recorded in the books of account at Rs.205.38 crore. Thus, it is discernible from the financial conditions that for migration to the new policy from the old one, no entry fee was required to be paid. It is this amount of entry fee, which, if and when, paid by cellular mobile service providers, would be for acquisition of licence and hence capital in nature. The other regular payments made by the assessee on year-to -year basis at a specified percentage of its adjusted gross revenue are not for acquisition of licence, but, to maintain the licence already granted. Such an amount for maintenance of licence, in contradistinction to the consideration for acquisition of licence, cannot be considered as a capital expenditure, being, eligible for deduction u/s 35ABB, as has been held by the authorities below. We have noticed above that section 35ABB is attracted only in respect of ITA Nos.1950 & 1169/Del/2014 capital expenditure incurred by telecommunication operators. If a particular statutory payment falls in the revenue field, the same at the outset ceases to be considered for the purposes of section 35ABB. The Hon'ble jurisdictional High Court in CIT vs. Bharti Hexacon Ltd. (2014) 265 CTR 130 (Del), considered the instant issue in an elaborate manner and held in para 42 that: "the licence fee paid or payable for the period up to 31st July, 1999, i.e., the date set out in the 1999 Policy should be treated as capital in nature and the balance amount payable on or after the said date should be treated as revenue." Since the amount of Rs.205.38 crore incurred by the assessee as licence fee @ 8%/6% on adjusted gross revenue is in relation to the period after 31st July, 1999 and is not in the nature of entry fee, such amount is to be allowed as deduction in entirety in the year of incurring without invoking the provisions of section 35ABB of the Act. As the AO has made an addition of Rs.154.54 crore on this score, we order for its deletion as the same is of the revenue nature.