DCIT 3(2), MUMBAI V. IDEA CELLUAR LTD ( SUCCESSOR TO IDEA MOBILE COMMUNICATION LTD), MUMBAI

ITA 3665/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70824 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 05-08-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 06-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: RONAK G DOSHI
• Keywords: Revenue expenditure; Capital expenditure
• Section: 37; 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 3665/MUM/2011 ASSESSMENT YEAR : 2004-05 DCIT - 3(2) ROOM NO.608, 6 TH FLOOR AAYAKAR BHAVAN MUMBAI-400 020. VS. M/S. IDEA CELLULAR LTD. (SUCCESSOR TO IDEA MOBILE COMMUNICATION LTD.) 5 TH FLOOR, WINDSOR, OFF CST RD. NEAR VIDYANAGARI, KALINA SANTACRUZ (E) MUMBAI-400 098. PAN NO.AAACE 1646 D (APPELLANT) (RESPONDENT) ITA NO. 5966/DEL./2010 ASSESSMENT YEAR : 2004-05 M/S. IDEA CELLULAR LTD. (SUCCESSOR TO IDEA MOBILE COMMUNICATION LTD.) 5 TH FLOOR, WINDSOR, OFF CST RD. NEAR VIDYANAGARI, KALINA SANTACRUZ (E) MUMBAI-400 098. PAN NO.AAACE 1646 D VS. D CIT CIRCLE 11(1) NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RONAK G. DOSHI REVENUE BY : SHRI S.D. SRIVASTAVA DATE OF HEARING : 05/08/2013 DATE OF PRONOUNCEMENT : 14 / 0 8 /2013 ITA NO.3665/11 & 5966/10 A.Y.04-05 IDEA CELLULAR LTD. 2 O R D E R PER B. RAMAKOTAIAH, AM: THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE REV ENUE AGAINST THE ORDERS OF CIT(A)XI, NEW DELHI, DATED 28.10.2010 . 2. BRIEFLY STATED, M/S. IDEA MOBILE COMMUNICATIONS LTD. WAS A COMPANY INCORPORATED ON 25/05/1995 AS ESCOTEL MOBIL E COMMUNICATIONS LTD. WHICH CHANGED ITS NAME TO THE A BOVE NAME ON 01/07/2004. ON 01/04/2006 THE SAID COMPANY WAS AMAL GAMATED TO IDEA CELLULAR LTD. WHICH IS THE PRESENT APPELLANT I N THESE APPEALS. WE HAVE HEARD THE LD. COUNSEL AND THE LD. DR. 3. REVENUE HAS RAISED THE FOLLOWING GROUND IN I TS APPEAL. 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN NOT HOLDING THAT THE ASSESSEE IS EN TITLED FOR ELIGIBLE DEDUCTION U/S. 35ABB AMOUNTING TO RS.7,18,89,454/- ON ACCOUNT OF VARIABLE LICENSE FEES AS AGAINST RS.34,41,65,000/- CLAIMED BY ASSESSEE. 2.1 THE AO ALLOWED AN AMOUNT OF RS.7,18,89,455/- AS VARIABLE LICENCE FEE AS AGAINST CLAIM OF RS.34.41 CRORES. THE LD. C IT(A) FOLLOWING THE ORDERS IN ASSESSMENT YEAR 2001-02 AND ALSO ORDERS O F ITAT IN ITA NO.310/DEL./2006 DATED 16.12.2009, ALLOWED THE ASSE SSEES CLAIM, HENCE, REVENUE IS AGGRIEVED. 2.2 THIS ISSUE WAS CRYSTALLIZED BY THE ORDERS OF TH E ITAT FOR THE ASSESSMENT YEAR 2001-02 WHEREIN IT WAS DECIDED AS UNDER :- THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCO ME TAX(A) HAS ERRED IN UPHOLDING AN ADDITION OF RS.26,92,54,013/- (RS.22,84,86,443 - 1, 92,32,340/- I.E. 1/5TH OF 28, 84,86,443/- ITA NO.3665/11 & 5966/10 A.Y.04-05 IDEA CELLULAR LTD. 3 TOWARDS VARIABLE LICENSE FEE PAID TO THE DEPARTMENT OF TELECOMMUNICATION IN ACCORDANCE WITH THE NEW REGIME OF TO THE NEW REVENUE SHARING REGIME. 3. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY OVERED IN FAVOUR OF THE ASSESSEE BY THE DE CISION OF THIS TRIBUNAL IN BHARTI CELLULAR LTD.VS. DCIT IN ITA NO. 5335/DEL/2003. IN THIS CASE THE ISSUE RAISED AS FOLLOWS: THE LD. AO HAD ERRED BOTH ON FACTS AND IN LAW IN H OLDING SUM OF RS. 29 ,56, 20, 000 /- TO THE CAPITAL EXPENDITURE BEIN G THE VARIABLE REVENUE SHARING FEE PAID PURSUANT TO THE MIGRATION OF THE APPELLANT TO THE NEW TELECOM POLICY 1999 REGIME WHEREBY THE GOVE RNMENT HAD UPTO THE DATE OF THE MIGRATION I.E. 1.8.1999 QUANTI FIED THE FIXED FEE PAYABLE BY THE APPELLANT UPTO 31.7.1999 AND THEREAF TER FIXED A BASIS FOR THE REVENUE SHARING FEE. THE CIT(A) HAS FURTHER ERRED IN CONFIRMING THE ACTION OF THE AO AND IN NOT TREATING RS. 29,56, 20,000/- TO BE REVENUE EXPENDITURE. 3.1THE TRIBUNAL ADJUDICATED AS UNDER: 9.WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE ALS O PERUSED THE ORDER OF THIS TRIBUNAL IN THE CASE OF MTNL REFERRED TO SUPRA. ITIS NOTICED THAT THE BOMBAY BENCH OF THIS TRIBUNAL IN T HE CASE OF MTNL HAS AFTER CONSIDERING THE VARIOUS DETAILS AND SUBMI SSIONS OF THE ASSESSEE AND THE REVENUE THEREIN, HAS HELD THAT THE LICENCE FEE WAS PAID ONLY FOR THE USE OF THE RIGHT TO DO THE BUSINE SS OF TELECOM PROVIDER. THE SAID RIGHT DID NOT GIVE RISE TO ANY C APITAL ASSET. FURTHER THE BOMBAY BENCH OF THIS TRIBUNAL HAS HELD AS FOLLO WS:- 8. REVOCATION OF LICENCES - THE CENTRAL GOVERNMENT MAY, AT ANY TIME REVOKE ANY LICENCE GRANTED U/S 4, ON THE BREACH OF ANY OF THE CONDITIONS THEREIN CONTAINED, OR IN DEFAULT OF PAYM ENT OF ANY CONSIDERATION PAYABLE THE REUNDER. FROM PERUSAL OF 5.8 OF THAT ACT, IT IS NOW EVIDENT THAT UNDER THE CIRCUMSTANCES THE LIC ENCE IS REVOKED, THE APPELLANT SHALL NOT BE ABLE TO CARRY ON ITS BUS INESS OF TELEPHONE SERVICES, UNLESS IT HAD PAID SUCH A LICENCE FEE TO THE GOVERNMENT. THE IRRESISTIBLE CONCLUSION, THEREFORE, WOULD BE THAT P AYMENT OF LICENCE FEE IS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINESS CARRIED ON BY IT. THE SAME IS, THEREFORE, AN ALLOWA BLE DEDUCTION U/S. 37 OF THE ACT. SINCE THE LIABILITY STANDS PAID DURI NG THE YEAR UNDER CONSIDERATION, WE DIRECT THE AO TO ALLOW THE DEDUCT ION TO THE APPELLANT. 10. RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THIS TRIBUNAL IN THE CASE OF MTNL REFERRED TO SUPRA, WE ARE OF THE VIEW THAT THE VARIABLE REVENUE SHARE LICENCE FEE PAID PU RSUANT TO THE MIGRATION OF THE ASSESSEE TO THE NEW TELECOM POLICY OF 1999 IS LIABLE TO BE ALLOWED AS REVENUE EXPENDITURE AND WE DO SO. IN THE CIRCUMSTANCES, AO IS DIRECTED TO DELETE THE ADDITIO N MADE BY HOLDING ITA NO.3665/11 & 5966/10 A.Y.04-05 IDEA CELLULAR LTD. 4 THE VARIABLE REVENUE SHARE FEE PAID TO BE CAPITAL E XPENDITURE. IN THE CIRCUMSTANCES, GROUND NO.3 IN ASSESSEES APPEAL STA NDS ALLOWED. 3.2.SINCE THE FACTS OF THE PRESENT CASE ARE IDENTIC AL, BOTH THE COUNSELS HAVE FAIRLY AGREED THAT THE SAME DECISION MAY BE AP PLIED. ACCORDINGLY, FOLLOWING THE ABOVE PRECEDENT, WE SET ASIDE THE ORDERS OF THE LD. CIT(A) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 2.3 SIMILAR ORDERS WERE ALSO PASSED IN ASSESSEES O WN CASE IN ASSESSMENT YEAR 2003-04 IN ITA NO.5635/MUM/2011 DAT ED 20.11.2012 AND ALSO IN THE CASE OF BHARTI AIRTEL LTD. VS. ACIT DATED 25.06.2010 IN ITA NOS.398 AND 422(MUM) OF 2006, 2935, 2936, 3609 AND 3611(MUM) OF 2009 AND C.O. NO.176(MUM)OF 2008 FOR ASSESSMENT YEARS 2002-03 TO 2004-05 AND IN THE CASE OF ACIT VS. VODAFONE ESSAR GUJARAT LTD. DATED 29/01/2010 IN ITA NOS.1361 AND 1878(AHD.) OF 2009 F OR THE ASSESSMENT YEAR 2006-07. RESPECTFULLY FOLLOWING THE ORDERS OF THE CO-ORDINATE BENCH, WE DISMISS THE GROUND RAISED BY THE REVENUE. 3. IN ASSESSEES APPEAL, ASSESSEE HAS RAISED THE FO LLOWING GROUNDS: GROUND -1. DISALLOWANCE OF FIXED LICENSE FEES OF RS.23,95,81,194/- CLAIMED U/S. 35ABB OF THE ACT. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE DCIT, NEW DELHI ( THE AO') IN DISALLOWING AMOUNT OF RS.23,95,81,194/ - (RS.40,24,22,968/- CLAIMED BY THE APPELLANT LESS RS .16,28,41,776/- ALLOWED BY THE AO) FROM THE AMOUNT CLAIMED AS A DED UCTION U/S. 35ABB OF THE ACT. 2. THE APPELLANT PRAYS THAT AO BE DIRECTED TO DELET E THE AFORESAID DISALLOWANCE. WITHOUT PREJUDICE TO ABOVE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN UPHOLDING THE ACTION OF AO B Y DENYING THE ALTERNATIVE CLAIM OF THE APPELLANT OF RS.18,77,34,0 30/- MADE ON THE BASIS OF THE DEDUCTION U/S. 35ABB COMPUTED BY IDEA CELLULAR LTD. IN WHICH THE APPELLANT WAS SUBSEQUENTLY AMALGAMATED. ITA NO.3665/11 & 5966/10 A.Y.04-05 IDEA CELLULAR LTD. 5 2. THE APPELLANT PRAYS THAT AO BE DIRECTED TO ALLOW THE CLAIM OF THE APPELLANT. 3.1 IN THE COURSE OF ARGUMENTS THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN VIEW OF THE MERGER OF THE ERSTWHI LE COMPANY WITH M/S. IDEA CELLULAR LTD., THE ISSUE AS CONTESTED IN THE A BOVE GROUND IS NOT BEING PRESSED, SINCE M/S. IDEA CELLULAR LTD. FOLLOW S DIFFERENT METHOD OF CLAIMING FIXED LICENSE FEES, WHICH ARE IN TUNE WITH THE ORDERS OF THE AUTHORITIES. WE DISMISS THE GROUND AS WITHDRAWN. 3.2 HOWEVER, THE ASSESSEES COUNSEL PRESSED FOR THE ALTERNATE CONTENTION WITH REFERENCE TO WORKING OUT THE BASIS FOR ALLOWING DEDUCTION UNDER SECTION 35ABB. IT WAS SUBMITTED THAT THE LD. CIT(A) DECIDED THE ISSUE IN ASSESSMENT YEAR 2001-02 AND IN ASSESSMENT YEAR 2003-04 AND ALSO PLACED THE ORDERS AND WORKING WITH REFERENCE T O DETAILS OF PAYMENT OF LICENCE FEES AND STATUS OF CLAIM OF 35ABB IN RES PECT OF YEARS AS UNDER :- DETAILS OF PAYMENT OF LICENCE FEES FINANCIAL YEAR ASSESSMENT YEAR LICENCE FEES 1995-96 1996-97 1997-98 1998-99 1999-00 1996-97 1997-98 1998-99 1999-00 2000-01 1,057,461,818 528,730,909 1,057,461,818 370,111,637 305,488,968 TOTAL 3,319,255,150 B) COMMENCEMENT OF OPERATIONS THE APPELLANT COMMENCED ITS OPERATIONS FROM JULY 3 1, 1997 (I.E. A.Y. 1998- 99) ITA NO.3665/11 & 5966/10 A.Y.04-05 IDEA CELLULAR LTD. 6 C) STATUS OF CLAIM U/S 35ABB OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS ACT) AND RELATED PROCEEDINGS THERE TO FINANCIAL YEAR ASSESS- MENT YEAR AMOUNT CLAIMED IN RETURN OF INCOME U/S 35ABB OF THE ACT REMARKS 1995-96 1996-97 NIL NA 1996-97 1997-98 NIL NA 1997-98 1998-99 330,456,818 INTIMATION U/S 143(1) OF THE ACT PASSED BY THE AO THUS ALLOWING APPELLANTS CLAIM OF DEDUCTION U/S 35ABB OF THE ACT. THE APPELLANT HAS FILED PETITION U/S 264 OF THE ACT DATED MAY 14, 2009 WHICH IS STILL PENDING FOR DISPOSAL, PAGE NO. 69 TO 74 OF PB- II 1998-99 1999-00 383,329,908 AO PASSED ORDER U/S 143 (3) OF THE ACT WHEREIN HE ALLOWED APPELLANTS CLAIM OF DEDUCTION U/S 35ABB OF THE ACT. THE APPELLANT HAS FILED PETITION U/S. 264 OF THE ACT DATED MAY 14, 2009 WHICH IS STILL PENDING FOR DISPOSAL, PAGE NO. 75 TO 80 OF PAPER BOOK-II 1999-00 2000-01 402,422,968 AO ALLOWED DEDUCTION OF RS. 18,07,52,120/- ON APPEAL, THE CIT(A) GAVE DIRECTION TO THE AO TO RECOMPUTE THE AMOUNT BY REVISING THE APPROPRIATE FRACTION FROM THE INCEPTION OF THE LICENSE, PAGE NO. 41 TO 54 OF PB-II ORDER GIVING EFFECT TO THE CIT(A) ORDER IS STILL PENDING. ITA NO.3665/11 & 5966/10 A.Y.04-05 IDEA CELLULAR LTD. 7 NO APPEAL HAS BEEN FILED IN ITAT BY THE DEPARTMENT OR THE APPELLANT. 2000-01 2001-02 402,422,968 THE HONBLE CIT-IV, NEW DELHI PASSED AN ORDER U/S. 263 OF THE ACT DIRECTING THE AO TO REWORK THE DEDUCTION U/S 35ABB OF THE ACT BY CONSIDERING THE REVISED PERIOD OF LICENSE OF 20 YEARS FROM A.Y. 1998-99. THE APPELLANT DID NOT PRESS THIS GROUND IN APPEAL BEFORE THE HONBLE ITAT SINCE THE ORDER THE HONBLE CIT WAS IN LINE WITH THE TAX TREATMENT OF IDEA CELLULAR LTD. WITH WHICH THE APPELLANT WAS MERGED FROM 1.4.2006. THE APPELLANT HAS FILED RECTIFICATION APPLICATION U/S 154 AGAINST ORDER GIVING EFFECT TO THE ORDER PASSED U/S. 263/143(3) OF THE ACT WHICH IS STILL PENDING FOR DISPOSAL, PAGE NO. 67 AND 68 OF PB-II 2001-02 2002-03 402,422,968 INTIMATION RECEIVED U/S . 143(1) OF THE ACT THUS ALLOWING APPELLANTS CLAIM OF DEDUCTION U/S 35ABB OF THE ACT. 2002-03 2003-04 402,422,968 AO ALLOWED DEDUCTION OF RS. 16,28,41,776/-. ON APPEAL, THE CIT(A) GAVE DIRECTION TO THE AO TO RECOMPUTE THE AMOUNT BY REVISING THE APPROPRIATE FRACTION FROM THE INCEPTION OF THE LICENSE, PAGE NO. 41 TO 54 OF PB-II. ORDER GIVING EFFECT TO THE CIT(A) ORDER IS STILL PENDING. NO APPEAL HAS BEEN FILED IN ITAT BY THE DEPARTMENT OR THE APPELLANT. ITA NO.3665/11 & 5966/10 A.Y.04-05 IDEA CELLULAR LTD. 8 IT WAS PRAYED THAT THE ISSUE HAS TO BE DECIDED BY T HE AO IN ASSESSMENT YEAR 2001-02 AND 2003-04 AND IN THIS YEAR ONLY CONS EQUENTIAL EFFECT HAS TO BE GIVEN. 4. WE HAVE CONSIDERED AND EXAMINED THE CONTENTIONS. AS THERE IS A CHANGE IN TELECOM POLICY ENHANCING LICENSE PERIOD F ROM 10 TO 20 YEARS ON PAYMENT OF ONE TIME ENTRY FEE /MIGRATION FEE, TH E DEDUCTION IS TO BE ALLOWED ON REVISED BASIS. THE ISSUE OF REVISED CLAI M WAS DECIDED BY LD. CIT(A) IN EARLIER YEARS WITH CERTAIN DIRECTIONS TO AO WHICH ARE YET TO BE IMPLEMENTED. THE BASIS OF REVISED AMOUNT FOR DEDUCT ION IS REQUIRED TO BE DETERMINED IN THE RESPECTIVE YEARS BY AO. SINCE THE REVENUE IS NOT IN APPEAL ON THE DIRECTIONS OF CIT(A) IN EARLIER YEAR S, WHATEVER AMOUNT IS QUANTIFIED THEREIN, SIMILAR AMOUNTS ON THAT BASIS A RE TO BE ALLOWED IN THIS YEAR, BEING CONSEQUENTIAL. AO IS DIRECTED TO D ETERMINE ACCORDINGLY THE ELIGIBLE AMOUNT IN THIS YEAR. WITH THESE DIRECT IONS, THE ASSESSEES ALTERNATE CONTENTION IS TREATED AS ALLOWED FOR STAT ISTICAL PURPOSES. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND ASSESSEES APPEAL TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST, 2013. SD/- SD/- (AMIT SHUKLA ) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 14/08/2013. JV. ITA NO.3665/11 & 5966/10 A.Y.04-05 IDEA CELLULAR LTD. 9 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.