Licence fee and Interest on it after 31st July 1999 would be treated as Revenue Expenditure

Brief of the case

The Hon’ble High Court, in the present case held that the licence fee payable after 31^st July 1999 should be treated as revenue expenditure. Similarly, if the interest was payable on license fee for the period post 31st July, 1999, it should be treated as revenue in nature.

Facts of the Case

The question is whether the licence fee payable by telecom service  providers to the Department of Telecommunications is to be treated as capital or revenue expenditure.

Contention of the revenue

The revenue urges that the interest on payment qua the license fee, could not be amortised in view of Section 35ABB.

Contention of the Assessee

The contentions of the assessee have been derived from the Judgment relied upon by the Hon’ble High Court in the case of the  Commissioner of Income Tax V. Bharti Hexacom (2014) 221 Taxman 323 (Del.), where the Assessee contended that there cannot be any factual dispute that this interest was paid to the Department of Telecommunication on delayed payment of license fee under the 1999 policy and not on account of license fee payable for period prior to 31st July, 1999.

Held by the Tribunal

In the case of the  Commissioner of Income Tax V. Bharti Hexacom (2014) 221 Taxman 323 (Del.)The tribunal has held that interest paid was revenue in nature because the license fee payable itself was revenue in nature, irrespective of fee payable prior to 31st July, 1999.

Held by Commissioner(Appeals)

At para no. 51 of Commissioner of Income Tax V. Bharti Hexacom (2014) 221 Taxman 323 (Del.), it has been mentioned that Commissioner (Appeals) in the case of Bharti Cellular Ltd. (ITA 893/2010) held that interest paid was capital expenditure because license fee itself was capital in nature.

Held by the Hon’ble High Court In the Present case the Hon’ble High Court relied on the  Commissioner of Income Tax V. Bharti Hexacom (2014) 221 Taxman 323 (Del.) where it was held that the licence fee payable on or before 31st July, 1999 should be treated as capital expenditure and the licence fee payable thereafter should be treated as revenue expenditure. Similarly, if the interest was payable on license fee for the period post 31st July, 1999, it should be treated as revenue in nature/character.  Accordingly, the matter was remitted.