DCIT Vs Bharti Hexacom Ltd. (ITAT Delhi)
License Fee Capital, But SUC Lives On: Bharti Hexacom—ITAT Delhi Applies SC, Splits the Baby Correctly
In a batch of Revenue appeals, core dispute revolved around telecom license fee, spectrum usage charges (SUC), subscriber verification penalty & discount on prepaid instruments. AO had treated variable license fee as capital expenditure u/s 35ABB, disallowed SUC, subscriber verification penalty u/s 37(1) & invoked s.40(a)(ia) r.w.s. 194H on distributor discounts. CIT(A) granted relief on all counts.
ITAT Delhi partly reversed & partly upheld CIT(A). Following Hon’ble Supreme Court in CIT vs Bharti Hexacom Ltd (458 ITR 593), Tribunal held that variable annual license fee under NTP-1999 is capital in nature & mandatorily amortisable u/s 35ABB; mere change in payment mechanism does not alter character of original obligation. To this extent, CIT(A) reversed & Revenue succeeded.
However, Tribunal drew a clear line between license fee & spectrum usage charges. SC judgment dealt only with license fee—not SUC. Relying on CIT vs Fascel Ltd (Delhi HC), Vodafone West India Ltd, Bharti Airtel Ltd, and also noting that AO himself allowed SUC as revenue in later AYs, ITAT held SUC/WPC charges are revenue expenditure allowable u/s 37(1). Revenue failed on this limb.
On subscriber verification penalty, Tribunal reiterated its consistent view in Assessee’s own cases that penalty for KYC lapses is contractual/compensatory, not for an offence or prohibited by law; hence Explanation 1 to s.37(1) not attracted. Disallowance rightly deleted.
On discount/free airtime to prepaid distributors, Tribunal followed Supreme Court in Bharti Cellular Ltd (2024) holding that distributor is not an agent, discount is not commission & s.194H has no application. Consequently, no disallowance u/s 40(a)(ia).
Across AYs 2017-18 to 2019-20, same reasoning applied mutatis mutandis. Result: Revenue appeals partly allowed only on license fee issue; all other grounds dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
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