DCIT Vs Reliance Jio Infocomm Limited (ITAT Mumbai)
A Book Entry Cannot Rewrite Tax Law-and Technology Alone Is Not “Royalty”: ITAT Grants Major Relief to Reliance Jio
The Mumbai ITAT dismissed two Revenue appeals involving the allowability of ₹1,10,03,17,60,701 of operational expenditure and a ₹66,65,41,174 disallowance under Section 40(a)(i).
On the first issue, Reliance Jio had capitalised certain operational expenses as capital work-in-progress (CWIP) in its accounts but claimed them as revenue expenditure for income-tax purposes. The expenses comprised interconnect charges, employee costs, professional fees, call-centre expenditure, power and fuel, repairs, network costs, customer-service expenditure, bank charges and other recurring items.
The Tribunal held that accounting treatment is relevant but not conclusive for determining tax deductibility. Jio’s commercial operations had commenced in FY 2016–17; during the relevant year, it had over 306 million subscribers and operational revenue of approximately ₹38,838 crore. The disputed expenditure was incurred for operating and improving the efficiency of an existing network and did not create any identifiable new capital asset. Actual costs of acquiring telecom equipment had already been separately capitalised. Therefore, the operational expenditure remained deductible under Section 37(1) despite being reflected as CWIP in the books.
On the second issue, the Tribunal held that payments to overseas telecom operators for voice termination, bandwidth and operation and maintenance services were not taxable in India as royalty or fees for technical services under the applicable DTAAs. Reliance Jio merely used standard automated telecom services; it did not acquire possession, control or any right to use the foreign operators’ equipment, network or technological processes.
