DCIT 3(2), MUMBAI V. IDEA CELLUAR LTD ( SUCCESSOR TO SPICE COMMUNICATIONS LTD), MUMBAI

ITA 3487/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101237 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 31-08-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 03-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENADR
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO.3487/MUM/2013 ASSESSMENT YEAR: 2004-05 DY. C.I.T.3(2), ROOM NO.608, 6 TH FLOOR, AAYAKAR BHAVAN, MUBMAI-400020 / VS. M/S IDEA CELLULAR LTD. (SUCCESSOR TO SPICE COMMUNICATIONS LTD.), 5 TH FLOOR, WINDSOR, OFF CST ROAD, NEAR VIDYANAGARI, KALINA, SANTACRUZ(E), MUMBAI-400098 ( / REVENUE) ( !' # /ASSESSEE) P.A. NO. AAACE1646D / REVENUE BY SHRI OM PRAKASH MEENA-DR !' # / ASSESSEE BY SHRI RONAK G. DOSHI $ % # & / DATE OF HEARING : 05/10/2015 % # & / DATE OF ORDER: 07/10/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 13/02/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE FIRST GROUND RAISED BY THE REVENUE PERTAINS TO DELETING THE ADDITION OF RS.69,79,000/- ON ACCOUNT OF INTERE ST OF DELAYED PAYMENT OF LICENSE FEE. M/S IDEA CELLULAR LTD. ITA NO.3487/MUM/2013 2 2. DURING HEARING, THE CRUX OF ARGUMENTS, ADVANCED BY SHRI OM PRAKASH MEENA, LD. DR, IS IN SUPPORT TO THE ADDITION BY CONTENDING THAT RELIEF WAS GRANTED TO T HE ASSESSEE WITHOUT APPRECIATING THE FACT THAT THE EXPENDITURE INCURRED IS OF CAPITAL IN NATURE, THEREFORE, IS INADMISSIBLE U/ S 37(1) OF THE INCOME TAX ACT, 1961. RELIANCE WAS ALSO PLACED UPON THE DECISION IN 221 TAXMAN 323 (DEL.) ON THE OTHER HAND , THE LD. COUNSEL FOR THE ASSESSEE, SHRI RONAK G. DOSHI, DEFE NDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY PLAC ING RELIANCE UPON THE DECISION IN ACIT VS FASCEL LTD. 1 20 TTJ 289 (DEL. TRIB.) AND BHARTI AIRTEL LTD. VS ACIT 41 SOT 175 (MUM. TRIB.). 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE CO MING TO ANY CONCLUSION, WE ARE REPRODUCING HEREUNDER THE RE LEVANT FINDING RECORDED IN THE ORDER OF THE LD. FIRST APPE LLATE AUTHORITY FOR READY REFERENCE:- 7. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMI SSIONS OF THE ASSESSEE, UNDISPUTEDLY, IT IS A PAYMENT OF INTEREST ON DELAYED PAYMENT OF LICENSE FEE WHICH IS IN DISPUTE. THE LIC ENSE FEE ITSELF IS NOT IN DISPUTE, WHEREAS, ASSESSEE HAS CLAIMED HA LICENSE FEE HAS ALREADY BEEN ALLOWED AS REVENUE EXPENDITURE TO THE ASSESSEE I N THE ORIGINAL ASSESSMENT ORDER AND EVEN IN REOPENED ASSESSMENT, IT RE MAINED ALLOWED, THEREFORE, ASSESSEE HAS CLAIMED THAT IN NO C ASE INTEREST CAN BE HELD A CAPITAL IN NATURE. BUT ASSESSEE HAS FU RTHER CLAIMED THAT EVEN IF THE LICENSE FEE IS TREATED AS CAPITAL E XPENDITURE, INTEREST ON DELAYED PAYMENT OF LICENCE FEE IS ALLOWABLE AS RE VENUE EXPENDITURE, THE ASSESSEE HAS RELIED ON THE DECISION OF HON'BLE ITAT IN THE CASE OF ACIT VS, FASCEL LTD. 120 TTJ 289, TH E RELEVANT PORTION OF WHICH IS REPRODUCED BELOW: M/S IDEA CELLULAR LTD. ITA NO.3487/MUM/2013 3 A PERUSAL OF LICENCE AGREEMENT REVEALED THAT THE LIABI LITY IN QUESTION WAS A CONTRACTUAL LIABILITY. IT WAS ALSO CLEAR THAT T HE PAYMENT OF INTEREST WAS NOTHING BUT A COMPENSATORY PAYMENT FOR DE PRIVING THE USE OF FUNDS BY THE GOVERNMENT OF INDIA. NOTWITHSTAN DING THE FACT THAT THE LICENCE FEE TO OPERATE' TELECOMMUNICATION S ERVICE IS A CAPITAL EXPENDITURE AS LAID DOWN IN SECTION 35ABB, T HE INTEREST PAYABLE UN OVERDUE PAYMENT OF THE LICENCE FEE CANNOT BE SAID TO BE CAPITAL EXPENDITURE, AS IT DOES NOT PARTAKE THE CHARAC TER' OF CAPITAL EXPENDITURE MERELY BECAUSE IT IS INCURRED IN RELATION TO A CAPITAL ASSET. THE LAW IS WELL-SETTLED THAT INTEREST ON BORROW INGS WHETHER FOR ACQUIRING A CAPITAL ASSET OR STOCK-IN-TRADE IS ALL OWABLE AS A DEDUCTION. IN VIEW OF THIS, THE INTEREST PAYABLE ON LICENCE FEE CANNOT BE EQUATED WITH THAT OF A LICENCE FEE AS CONTEMPLAT ED BY SECTION 35ABB. SINCE SECTION 35ABB IS INAPPLICABLE IN RESPEC T OF INTEREST PAYABLE FOR DELAY IN PAYMENT OF LICENCE FEE TO OPERAT E TELECOMMUNICATION SERVICES, THE CLAIM FOR DEDUCTION B Y THE ASSESSEE ON ACCRUAL BASIS HAD TO BE ALLOWED. THE COMMISSIONER (APPEALS) WAS FULLY JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESS EE' IN VIEW OF THE ABOVE DECISION OF HON'BLE ITAT IT IS CLEAR THAT INTEREST PAYMENT RELATES TO THE BUSINESS OF THE ASSESSEE AND IT IS NOT CAPITAL EXPENDITURE, BUT ALLOWABLE AS REVENUE EXPENDITURE, EVE N IF LICENSE FEE IS TREATED AS CAPITAL EXPENDITURE, WHEREAS, IN TH E CASE OF THE ASSESSEE LICENCE FEE HAS BEEN ALLOWED AS REVENUE EXP ENDITURE. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE ITAT IN THE ABOVE MENTIONED CASE OF FASCEL LTD. THE ADDITION OF RS,69 ,79,000/- ON ACCOUNT OF INTEREST ON DELAYED PAYMENT OF-LICENSE FE E IS DELETED AND THE GROUND OF APPEAL IS ALLOWED. 2.1. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSELS, IF KEPT IN JUXTAPOSITION AND ANALYZED, WE NOTE THAT THE ONLY D ISPUTE TO BE ADJUDICATED BY US PERTAINS TO PAYMENT OF INTERES T ON DELAYED PAYMENT OF LICENCE FEE. THE ASSESSEE HAS CL AIMED THAT IDENTICAL CLAIM WAS ALLOWED AS REVENUE EXPENDI TURE EVEN IN ORIGINAL ASSESSMENT ORDER. WE FIND THAT THE TRI BUNAL IN M/S IDEA CELLULAR LTD. ITA NO.3487/MUM/2013 4 THE CASE OF ACIT VS FASCEL LTD. (SUPRA) HAS DELIBER ATED UPON THE ISSUE, HELD THAT INTEREST PAYABLE ON OVERDUE PA YMENTS OF LICENCE FEE, CANNOT BE SAID TO BE CAPITAL IN NATURE AS IT DOES NOT PARTAKE THE CHARACTER OF CAPITAL EXPENDITURE ME RELY BECAUSE IT IS INCURRED IN RELATION TO A CAPITAL ASS ET AND THUS ALLOWABLE AS REVENUE EXPENDITURE. FOLLOWING THE AFO RESAID DECISION AND ALSO THE RATIO LAID DOWN IN BHARTI AIR TEL LTD. VS ACIT 41 SOT 175 (MUM. TRIB.), IT IS ALSO NOTED THAT THERE IS A DIFFERENCE IN THE TELECOM POLICY WHICH WAS UPTO JUL Y 1999 AND NEW POLICY CAME INTO PICTURE WITH EFFECT FROM01/08/1999. THE PRESENT LICENCE FEE IS FOR FINA NCIAL YEAR 2003-04, WHICH IS POST JULY, 1999, THEREFORE, THE B ASIC LICENCE FEE IS ALLOWABLE. IT IS ALSO NOTED THAT FOR EARLIER YEAR, EVEN THE ASSESSING OFFICER ALLOWED THE SAME AS REVE NUE EXPENDITURE. THE ALLOTMENT WAS UNDER THE OLD POLICY AS IS EVIDENT FROM PAGE 10, SCHEDULE 13 (OF THE PAPER BOO K). RS.4,43,611/- WAS ALLOWED AS REVENUE DEDUCTION AND BOOK ENTRY WAS AMORTIZED AS REVENUE FEES. EVEN OTHERWISE , THE RATIO LAID DOWN IN CIT VS BHARTI HEXACOM LTD. (2014 ) 221 TAXMAN 323 (DEL.) ORDER DATED 19/12/2013 SUPPORTS T HE CSE OF THE ASSESSEE, THUS, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL S), MORE SPECIFICALLY WHEN, NO CONTRARY DECISION WAS BR OUGHT TO OUR NOTICE. THIS GROUND OF THE REVENUE IS, THEREFOR E, DISMISSED. 3. THE NEXT GROUND PERTAINS TO DELETING THE ADDITI ON OF RS.15,01,908/- ON ACCOUNT OF EXCESS CLAIM OF DEPREC IATION ON M/S IDEA CELLULAR LTD. ITA NO.3487/MUM/2013 5 PRINTERS, UPS AND OTHER ACCESSORIES. THE CRUX OF AR GUMENT ON BEHALF OF THE REVENUE IS IDENTICAL TO THE GROUND RA ISED BY CONTENDING THAT THE ACCESSORIES ARE PART OF POWER S UPPLY SYSTEM AND NOT OF COMPUTER SYSTEM, THEREFORE, NOT E NTITLED TO HIGHER RATE OF DEPRECIATION. ON THE OTHER HAND, TH E LD. COUNSEL FOR THE ASSESSEE, DEFENDED THE CONCLUSION A RRIVED AT IN THE IMPUGNED ORDER. 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WITHOUT G OING INTO MUCH DELIBERATION, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE CONCLUSION DRAWN BY THE L D. COMMISSIONER OF INCOME TAX (APPEALS) FOR READY REFE RENCE:- I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISS IONS OF THE ASSESSEE. THE ASSESSING OFFICER HAS HELD THAT THE U PS IS ONLY A DEVICE TO PROVIDE POWER BACK AND IT IS NEITHER PERFORMI NG ANY OF THE FUNCTIONS OF A COMPUTER AND SIMILARLY OTHER ITEMS ARE A LSO NOT FUNCTIONING AS COMPUTER. WHEREAS, THE ASSESSEE HAS CL AIMED THAT COMPUTER DOES NOT FUNCTION IN ISOLATION OR STAND ALO NE, THE OTHER ITEMS SUCH AS PRINTER AND UPS ETC. ARE NECESSARY FOR THE FUNCTIONING OF THE COMPUTER AND, THEREFORE, THESE ITEMS ARE ALSO INTEGRAL PART OF THE COMPUTER AND ACCORDINGLY DEPRECIATION IS TO BE ALLOWED ON THESE ITEMS AT THE SAME RATE AT WHICH IT IS ALLOWED TO COMPUTERS. THE ASSESSEE'S VIEW FINDS SUPPORT FROM VARIOUS DECISIO NS OF HON'BLE HIGH COURTS AND HON'BLE ITAT AS RELIED BY THE ASSESSE E AND AS REPRODUCED ABOVE. HON'BLE DELHI HIGH COURT HAS HELD TH AT UPS TO BE ELIGIBLE FOR DEPRECIATION @ 60% IN THE CASE OF ORIENT CERAMIC AND INDUSTRIES LTD. (SUPRA). HONBLE ITAT HAS FOUND PRINTE RS, SCANNERS AND SERVERS AS INTEGRAL PART OF COMPUTER SYSTEM AND ENT ITLED FOR DEDUCTION @ 60% IN THE CASE OF OMNI GLOBE INFORMATIO N TECHNOLOGIES INDIA PVT. LTD. (SUPRA). SIMILAR IS THE DECISION OF HON'BLE ITA T IN THE CASE OF EXPEDITORS IN INTERNATIONAL (IND IA) PVT. LTD. (SUPRA) AND DATACRAFT (INDIA) LTD. (SUPRA). THEREFORE, RE SPECTFULLY FOLLOWING THE DECISIONS RELIED BY THE ASSESSEE A.O. IS DIRECTED TO ALLOW DEPRECIATION @ 60% ON SUCH ITEMS CONSISTING OF UPS, PRINTERS M/S IDEA CELLULAR LTD. ITA NO.3487/MUM/2013 6 SCANNERS AND OTHER ITEMS WHICH ARE INTEGRAL PART OF COMP UTERS AFTER VERIFICATION. IN RESULT, THE GROUND OF APPEAL IS TREATE D AS ALLOWED. 3.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE RATIO LAID DOWN IN DCIT VS DATACRAFT INDIA LTD. (2010) 40 SOT 295 (MUM )(SB), DCIT VS BTA CELLCOM LTD. (ITA NO.3658/DEL./2011), M /S WEIZMANN LTD. VS DCIT (ITA NO.768, 742, 770/MUM/201 2) ORDER DATED 31/10/2013, EXPEDITORS INTERNATIONAL (I NDIA) PVT. LTD. VS ADDL. CIT (2008) 118 TTJ 652 (DEL.). IN THE SE CASES, IT HAS ALREADY BEEN HELD THAT PERIPHERALS SUCH AS PRIN TERS, SCANNERS, NT SERVER ETC, ARE INTEGRAL PART OF COMPU TER, THEREFORE, ELIGIBLE FOR DEPRECIATION AT HIGHER RATE . RESPECTFULLY, FOLLOWING THE RATIO LAID DOWN IN THE AFORESAID CASE S, WE AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 05/10/2015. SD/ - (RAMIT KOCHAR) SD/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER $ MUMBAI; ( DATED : 07/10/2015 M/S IDEA CELLULAR LTD. ITA NO.3487/MUM/2013 7 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. $ 0# ( *+ ) / THE CIT, MUMBAI. 4. $ 0# / CIT(A)- , MUMBAI 5. 23 .# , *+& * 4 , $ / DR, ITAT, MUMBAI 6. 5! 6 / GUARD FILE. / BY ORDER, /2+# .# //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI