Payment of Upfront Fees by DIAL held to be Revenue Expenditure

Payment of Upfront Fees by Delhi International Airport Limited  (DIAL) Held To Be Revenue Expenditure

Recently, in ACIT vs. Delhi International Airport Pvt. Ltd. [ ITA No. 2720/DEL/2011, decided on 14.12.2017] Revenue had challenged the finding of the CIT (A) in treating the “Upfront fees” of Rs. 150,00,00,000/- as revenue expenditure instead of capital expenditure treated by the AO.

Briefly, in the above-mentioned appeals, pursuant to “Operation, Management and Development Agreement” (hereinafter referred to as OMDA), a lease deed was simultaneously entered into between Airport Authority of India (AAI) and ‘Delhi International Airport Limited’ (hereinafter referred to as ‘assessee’ or ‘DIAL’ or JVC) for the lease of ‘Airport site’ which had an area of more than 4609 acres, at a very nominal lease rent of Rs. 100 per annum for a period of 30 years and this was further extendable for another period of 30 years at the discretion of the parties. Apart from that, the assessee was also required to pay “Upfront Fees” of Rs. 150 crores; and also ‘Annual fees’ expressed in the terms of percentage of revenue, which was determined at 45.99% of the gross revenue for allowing the assessee to carry on the function of development, operation and management of the Delhi Airport. The AO treated the amount of Rs. 150 crores paid as ‘license fee’ for acquiring the licence in the nature of enduring benefit and accordingly, held that it is to be allowed as deduction to the assessee on spread over basis, that is, over the period of 30 years and consequently he allowed 1/30th of the said payment.CIT (A) decided this issue in favour of the assessee after noting following important facts:-

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