Advocate Akhilesh Kumar Sah
AT & T Global Network Services (India) Pvt. Ltd. Vs JCIT (ITAT Delhi)
Revenue share based licence fee held to be allowable expense under section 37(1), merely because the Revenue has not accepted the decision of the Hon’ble Delhi High Court and an SLP has been filed against the said order, the same cannot be a ground to disallow the expenditure unless and until the same is reversed or stayed by the Supreme Court
In AT & T Global Network Services (India) Pvt. Ltd. vs. JCIT [ITA Nos.5535/Del/2016 & 7115/Del/2017 Assessment Years: 2012-13 & 2013-14, decided on 27.05.2019], one of the ground related in ITA Nos.5535/Del/2016 to the disallowance of annual revenue share based licence fee, which was as follows:
- On the facts, in the circumstances of the case and in law, the Ld. AO/ Hon’ble DRP erred in disallowing an amount of Rs. 27,42,18,112 (being disallowance of Rs 30,53,49,361 for AY 2012-13 less credit of Rs. 1,66,89,296 for AY 2011-12 and of Rs. 1,44,41,953 for AY 2010-11) under the head licence fees debited to Profit & Loss Account by holding that annual license fee is not allowable as a revenue expenditure and it should be amortised under section 35ABB of the Act.
- On the facts, in the circumstances of the case and in law, the Ld. AO/Hon’ble DRP erred in not following the judgment of the Hon’ble jurisdictional Delhi High Court in the case of Bharti Hexacom Ltd [2014] 265 CTR 130 (Delhi) wherein it was held that annual revenue share based license fee paid by the telecom operators is revenue expenditure, allowable under section 37(1) of the Act and not a capital expenditure amortizable under section 35ABB of the Act.
- On the facts, in the circumstances of the case and in law, the Hon’ble DRP erred in ignoring that aforesaid disallowance has been directed to be deleted by the Hon’ble DRP for the preceding assessment year i.e. AY 2011-12.
Facts of the case in brief were that the assessee during the impugned assessment year incurred expenses of Rs.32.71 crores towards revenue share based licence fee for maintenance and usage of the telecom licence payable to the Department of Telecom. The Assessing Officer disallowed the assessee’s claim of revenue share based licence fee as allowable expense under section 37(1) of the Income Tax Act, 1961 (for short ‘the Act’) on the premise that the same is liable to be amortized as per the provisions of section 35ABB of the Act over the remaining life of the licence (15 years). Thus, an amount of Rs.30.53 crores was disallowed on proportionate basis. The Assessing Officer capitalized the annual revenue share based licence fee on the ground that the Revenue has filed a Special Leave Petition against the order of the Hon’ble Delhi High Court in the case of CIT vs. Bharti Hexacom Limited (2014) 265 CTR 130 (Del) which is squarely applicable to the assessee’s case and to keep the matter alive.
The counsel for the assessee submitted that the annual revenue share based licence fee incurred by the assessee is a business expenditure allowable under section 37(1) of the Act of the Act. Such expenditure had been incurred by the assessee towards maintenance and usage of the telecom licence and not for acquiring a right to operate telecommunication services and thus would not attract the provisions of section 35ABB of the Act. He submitted that the application of provisions of section 35ABB is grossly erroneous and liable to reversed since section 35ABB applies only when an assessee incurs a capital expenditure for obtaining/acquiring any right to operate telecommunication services. Thus, if the expenditure is not for obtaining or acquiring any right and also it is not in the nature of a capital expenditure, section 35ABB of the Act is not applicable. Referring to the decision of the Delhi High Court in the case of CIT vs. Bharti Hexacom Limited (supra) he submitted that the Hon’ble High Court in the said decision has unequivocally and categorically held that the licence fee paid under the revenue share regime is clearly a tax deductible expenditure and has to be allowed u/s 37(1) of the Act. Referring to the decision of the Delhi Bench of the Tribunal in the case of Hutchison Essar Telecom vs. JCIT vide ITA Nos.1751 & 1752/MDS/2004, he submitted that the Tribunal has approved the treatment of subscriber based licence fee as an allowable expenditure under section 37 of the Act. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Bharti Airtel Ltd. vs. ACIT vide ITA No.398/Mum/2006, order dated 25th June, 2010, he submitted that the Tribunal in the said decision has held that the deduction for annual licence fee paid to the Department of Telecommunications should be allowed u/s 37(1) of the Act. Merely because the Revenue has not accepted the decision of the Hon’ble Delhi High Court and an SLP has been filed against the said order, the same cannot be a ground to disallow the expenditure. Referring to the decision of the Tribunal in assessee’s own case for assessment year 2010-11 vide ITA no.1059/Del/2015, order dated 18th September, 2017, he submitted that under identical circumstances, the Tribunal has deleted the disallowance made by the Assessing Officer. He accordingly submitted that this being a covered matter in favour of the assessee, the disallowance made by the Assessing Officer which has been upheld by the DRP should be deleted.
The DR, on the other hand, strongly supported the order of the Assessing Officer and DRP.
The learned Members of the Delhi ITAT considered the rival arguments made by both the sides and perused the orders of the authorities below and found that the identical issued had come up before the Tribunal in assessee’s own case for assessment year 2010-11. The Tribunal in ITA No.1059/Del/2015, order dated 18th September, 2017, had discussed the issue and allowed the claim of the assessee by observing as under:-
“21. We have carefully considered the rival contentions and also perused the facts of the case as well as the decisions relied upon by the appellant. We agree with the contention of the assessee that the expense of Rs. 24,55,13,201/- incurred towards revenue share based license fee for maintenance and usage of telecom license payable to Department of Telecom is a recurring fee paid by the license holder on periodic basis towards maintenance and use of the license and the benefit of the same does not extend beyond the close of the year. Further, it is also relevant to note here benefit of the revenue share based license fees paid during one financial year cannot be extended to the subsequent financial year, for which license fee is to be paid separately upon the adjusted gross revenues of such subsequent year. Therefore, payment of the aforesaid annual fee cannot be said to confer any right of an enduring nature upon appellant. We are convinced that the appellant’s case is squarely covered by the decision of Hon’ble Delhi High Court in the case of CIT vs. Bharti Hexacom Limited [2014] 265 CTR 130 (Delhi) other case laws relied upon by the appellant as cited above. The Ld. DR could not controvert that how this issue is not squarely covered by the decision of the jurisdictional High Court.It is also important to note that in the immediately succeeding year on same facts, the DRP has allowed the claim of the licence fees on revenue basis u/s 37(1) of the Act In view of the above facts and respectfully following the decision of the Hon’ble jurisdictional High Court we allow the claim of the assessee. In the result the ground No. 4 of the appeal is allowed.”
The learned Members of the Delhi ITAT held that merely because the Revenue has filed SLP against the order of the Delhi High Court, the same cannot, in our opinion, be a ground to take a contrary view than the view taken by the Hon’ble High Court unless and until the same is reversed or stayed by the Hon’ble Apex Court. Therefore, respectfully following the decision of the Tribunal in assessee’s own case for assessment year 2010-11, the disallowance made by the Assessing Officer on account of annual revenue share based licence fee is deleted. The ground raised as above by the assessee was accordingly allowed.
FULL TEXT OF THE ITAT JUDGEMENT
