Vodafone Mobile Services Ltd., New Delhi V. DCIT, New Delhi

ITA 4217/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4052 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-06-2017
• Assessment Year: 2000-2001
• Appeal Filed On: 10-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY VERMA
• Assessee Lawyers: ISHITA FARSAIYA S; ASEEM GROVER CAS
• Keywords: Business expenditure; Question of law; Capital receipt; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4217/DEL./2013 (ASSESSMENT YEAR : 2000-01) VODAFONE MOBILE SERVICES LTD., VS. DCIT, (FORMERLY KNOWN AS VODAFONE ESSAR CIRCLE 12 (1), MOBILE SERVICES LTD.), NEW DELHI. C 48, OKHLA INDUSTRIAL AREA, PHASE-II, NEW DELHI 110 020. (PAN : AAACS4457Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SALIL KAPOOR & ASEEM GROVER, CAS AND MS. ISHITA FARSAIYA, ADVOCATES REVENUE BY : SHRI VIJAY VERMA, CIT DR DATE OF HEARING : 05.12.2017 DATE OF ORDER : 15.01.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. VODAFONE MOBILE SERVICES LTD. (HEREINAFTER REFERRED TO AS THE ASSESSEE COMPANY) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 13.05.2013 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- ITA NO.4217/DEL/2013 2 19, NEW DELHI QUA THE ASSESSMENT YEAR 2000-01 ON TH E GROUNDS INTER ALIA THAT :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX APPEALS - XI X, NEW DELHI ('LEARNED CIT(A)') HAS ERRED IN PASSING AN OR DER UNDER SECTION ('U/S') 250 OF THE INCOME TAX ACT, 1961 ('A CT'), PARTLY CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIO NER OF INCOME TAX, CIRCLE 12(1), NEW DELHI ('LEARNED AO') IN THE ORDER PASSED U/S 143(3) FOR THE SUBJECT A Y. GROUND NO. 1- DISALLOWANCE OF LICENSE FEE U/S 37(1) OF THE ACT 1.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE LEARNED AO THAT THE ANNUAL REVENUE SHARE BASED LICE NSE FEE OF INR 516,037,612, PAYABLE BY THE APPELLANT TO DEPART MENT OF TELECOM (DOT) QUALIFIES AS A CAPITAL EXPENDITURE BE ING CONSIDERATION FOR OBTAINING THE TELECOM LICENSE AND HENCE IS AMORTISABLE U/S 35ABB OF THE ACT. GROUND NO. 2- DISALLOWANCE OF LOSS INCURRED ON DIMI NUTION IN VALUE OF INVESTMENTS 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE LEARNED AO IN DISALLOWING THE CLAIM FOR LOSS ON ACC OUNT OF DIMINUTION IN VALUE OF INVESTMENT IN OPTIONALLY FUL LY CONVERTIBLE DEBENTURE ('OFCD') IN AIRCEL DIGILINK L IMITED ('ADIL') AMOUNTING TO INR 2,475,556,000. GROUND NO. 3- DISALLOWANCE OF PAYMENT MADE AS GUARA NTORS 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE LEARNED AO IN DISALLOWING THE GUARANTEE PAYMENT OF INR 283,626,000 BY THE APPELLANT TO DEPARTMENT OF TELECOMMUNICATIONS ('DOT') UNDER A GUARANTEE GIVEN BY THE APPELLANT IN THE ORDINARY COURSE OF THE APPELLANT'S BUSINESS. GROUND NO. 4- TREATING CERTAIN RECEIPTS/ WAIVERS AS INCOME INSTEAD OF CAPITAL RECEIPTS 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE LEARNED AO IN TREATING THE AMOUNT OF INR 52,934,650 , BEING WAIVER OF THE AMOUNTS RECEIVED ON CAPITAL ACCOUNT, AS INCOME CHARGEABLE TO TAX IN THE YEAR OF WAIVER. ITA NO.4217/DEL/2013 3 4.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATI NG THAT THE CHARACTER OF RECEIPT IS DECIDED IN LAW AT THE TIME OF THE RECEIPT AND THAT SUCH CHARACTER DOES NOT CHANGE BY ANY SUBS EQUENT EVENT AND HENCE MERELY BECAUSE THE AMOUNT IS WAIVED DURIN G THE CAPTIONED YEAR, WHAT WAS ORIGINALLY RECEIVED AS A C APITAL RECEIPT DOES NOT LOSE ITS CHARACTER AND BECOME A REVENUE RE CEIPT. 4.2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATI NG THAT THE COPY OF THE FOREIGN INWARD REMITTANCE CERTIFICATE ( 'FIRC') SUBMITTED BY THE APPELLANT CLEARLY EVIDENCES THAT T HE PURPOSE OF REMITTANCE WAS 'COLLATERAL AGAINST FACILITIES', THE REBY SUBSTANTIATING THAT THE RECEIPT WAS CAPITAL IN NATU RE. GROUND NO.5- LEVY OF PENALTY U/S 271(1)(C) OF THE A CT 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO HAS ERRED IN INITIATING PENALTY U/S 271(1)(C) OF THE ACT ON THE DISALLOWANCES/ADDITIONS MADE IN T HE ASSESSMENT ORDER FOR THE SUBJECT A Y. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICATION OF THE CONTROVERSY AT HAND ARE : ASSESSING OFFICER DISALLO WED AN AMOUNT OF RS.52,29,51,303/- BEING THE AMOUNT DEBITED BY TH E ASSESSEE COMPANY IN P&L ACCOUNT AS THE CLAIM MADE BY THE ASS ESSEE COMPANY UNDER SECTION 35ABB OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT). THE AO PROCEEDED TO DECIDE THAT SINCE THE PAYMENT OF LICENCE FEE IS A CAPITAL EXPENDITURE THE CLAIM FOR DEDUCTION AS REVENUE EXPENDITURE IS NOT ALLOWABLE. AO ALSO DISALLOWED THE CLAIM FOR LOSS ON ACCOUNT OF DIMINUT ION IN THE INVESTMENT IN OPTIONAL FULLY CONVERTIBLE DEBENTURES (OFCD) IN AIRCEL DIGILINK LTD. (ADIL) TO THE TUNE OF RS.247,5 5,56,000/- ON THE GROUND THAT NEITHER APPLICATION MONEY FOR OFCD WAS A REVENUE ITA NO.4217/DEL/2013 4 EXPENDITURE NOR THIS SUM WAS INCURRED WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS. AO FURTHER DISALLOWED THE GUARANTEE PAYMENT OF RS.28,36,26,000/- BY THE ASSESSEE COMPAN Y TO DEPARTMENT OF TELECOMMUNICATION (DOT) UNDER THE GU ARANTEE GIVEN BY THE ASSESSEE COMPANY IN THE ORDINARY COURS E OF ITS BUSINESS ON THE GROUND THAT THE CORPORATE GUARANTEE GIVEN BY THE ASSESSEE COMPANY IS NOT AN EXPENDITURE WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS NOR THE ASSESSEE COMPANY BR OUGHT ON RECORD ANY EVIDENCE THAT IT WAS NOT A MERE PROVISIO N AND NOT A SUM ACTUALLY PAID OR INCURRED. ASSESSEE COMPANY HAS CL AIMED DEDUCTION OF RS.5,29,34,650/- AS CAPITAL RECEIPT IN COMPUTATION OF INCOME. AO DISALLOWED THE SAME ON THE GROUND THAT THE ASSESSEE COMPANY HAS FAILED TO SUBMIT THE AGREEMENT, COPY OF AGREEMENT OR THE RECEIPT OF THIS SUM OR THE WAIVER OF LIABILITY BY THE SWISSCOM AND AS SUCH, THE EXACT AMOUNT OF THE SAID RECEIPT I S NOT CLEAR. 3. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EAL BEFORE THE LD. CIT (A) WHO HAS PARTLY UPHELD THE ASSESSMEN T ORDER BY PARTLY ALLOWING THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE COMPANY HAS COME UP BEFORE THE TRIBUNAL BY CHALLENG ING THE IMPUGNED ORDER PASSED BY LD. CIT (A) . 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NO.4217/DEL/2013 5 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUND NO.1 5. LD. AR FOR THE ASSESSEE COMPANY CONTENDED THAT T HIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE COMPANY IN CASE C ITED AS CIT VS. BHARTI HEXACOM LTD. (2013) 221 TAXMAN 323 WHEREIN THE ASSESSEE COMPANY WAS ONE OF THE PARTY. 6. UNDISPUTEDLY, THE ASSESSEE COMPANY IS INTO THE B USINESS OF TELECOMMUNICATION SERVICES AND VALUE ADDED RELATED SERVICES AND WAS AWARDED LICENCE BY THE GOVERNMENT FOR TELECOMMU NICATION SERVICES INITIALLY UNDER 1994 AGREEMENT WHICH WAS S UBSEQUENTLY GOVERNED BY NEW TELECOMMUNICATION POLICY EFFECTIVE FROM 31.07.1999. IT IS ALSO NOT IN DISPUTE THAT THE ASS ESSEE COMPANY HAS PAID LICENCE FEE AFTER 31.03.1999. 7. HONBLE HIGH COURT IN CIT VS. BHARTI HEXACOM LTD. (SUPRA), WHEREIN THE ASSESSEE COMPANY IS ONE OF THE PARTY, AS IS EVIDENT FROM PARA 2 PAGE 6 OF THE JUDGMENT, HAS CAT EGORICALLY HELD THAT LICENCE FEE PAYABLE AFTER 31.07.1999 SHOULD BE TREATED AS REVENUE EXPENDITURE. FOR READY PERUSAL, THE OPERAT IVE PART OF THE JUDGMENT IS REPRODUCED AS UNDER :- 48. THE APPEAL ITA NO. 417/2013 BY THE REVENUE IN THE CASE OF HUTCHISON ESSAR PVT. LTD., PERTAINS TO THE ASSES SMENT YEAR 1999-2000 I.E. YEAR ENDING 31 ST MARCH, 1999. IT IS FOR THE PERIOD ITA NO.4217/DEL/2013 6 PRIOR TO THE PERIOD 31 ST JULY, 1999. AS PER THE DISCUSSION ABOVE, THE LICENCE FEE PAYABLE ON OR BEFORE 31 ST JULY, 1999 SHOULD BE TREATED AS CAPITAL EXPENDITURE AND THE LICENCE FEE PAYABLE THEREAFTER SHOULD BE TREATED AS REVENUE EXPENDITURE . IN VIEW OF THE AFORESAID POSITION, THE QUESTION OF LAW ADMITTE D FOR HEARING IN THIS APPEAL AS RECORDED IN THE ORDER DATED 21 ST AUGUST, 2013, HAS TO BE ANSWERED IN FAVOUR OF THE REVENUE AND AGA INST THE RESPONDENT ASSESSEE. 8. SO, FOLLOWING THE DECISION RENDERED BY THE HONB LE HIGH COURT, WE ARE OF THE CONSIDERED VIEW THAT AO/CIT (A ) HAVE ERRED IN DISALLOWING THE AMOUNT OF RS.51,60,37,612/- BEIN G THE CAPITAL EXPENDITURE AMORTIZED U/S 35ABB INCURRED FOR OBTAIN ING TELECOMMUNICATION LICENCE FROM THE DOT. SO, THE AM OUNT OF RS.51,60,37,612/- BEING REVENUE EXPENDITURE IS ORDE RED TO BE DELETED. CONSEQUENTLY, GROUND NO.1 IS DETERMINED I N FAVOUR OF THE ASSESSEE. GROUND NO.2 9. AO/CIT (A) DISALLOWED THE CLAIM FOR LOSS ON ACCO UNT OF DIMINUTION IN VALUE OF INVESTMENT IN OFCD IN ADIL T O THE TUNE OF RS.2,47,55,56,000/-. THE LD. AR FOR THE ASSESSEE C OMPANY CONTENDED THAT THIS AMOUNT IS ON ACCOUNT OF STEP DO WN SUBSIDY PERMITTED IN ITS OBJECT AND MADE CLAIM U/S 36 AND A LTERNATIVELY U/S 37 OF THE ACT. 10. UNDISPUTEDLY, THE ASSESSEE COMPANY HAS INVESTED AN AMOUNT OF RS.15,63,819/- IN THE EQUITY OF KARTHIK FINANCIA L SERVICES LTD. ITA NO.4217/DEL/2013 7 (KFCL) AND HAS ALSO INVESTED AN AMOUNT OF RS.2,47,5 5,56,000/- IN ADIL AND GAVE CORPORATE GUARANTEE AGAINST GUARANTEE FACILITIES. 11. LD. AR FURTHER CONTENDED THAT THE ASSESSEE COMP ANYS INTENTION FOR INVESTING IN OFCD IN ADIL FOR FURTHER ANCE OF ITS BUSINESS SINCE ADIL IS ALSO ENGAGED IN SAME BUSINES S I.E. TELECOM BUSINESS AND UTILIZED TELECOM LICENCE IN THE AREA F OR WHICH THE ASSESSEE COMPANY DID NOT HAVE ANY LICENCE. WHEN TH E ASSESSEE COMPANY AS WELL AS ADIL WAS HAVING THE SAME LICENCE TO RUN TELECOM BUSINESS THEN CERTAINLY REVENUE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SO, WHEN THE ADIL HAS SUFFERED PERSISTENT LOSSES AND VA LUE OF THE INVESTMENT COMES DOWN TO ZERO, THE ASSESSEE COMPANY HAD NO ALTERNATIVE EXCEPT TO WRITE OFF THE LOSS INCURRED O N ACCOUNT OF NON- RECOVERABILITY OF ANY BENEFIT QUA FUNDS PLACED AT T HE DISPOSAL OF ADIL. SO, WE ARE OF THE CONSIDERED VIEW THAT THE F UNDS INVESTED WAS FOR COMMERCIAL BUSINESS EXPEDIENCY AND ARE ALLO WABLE U/S 37 OF THE ACT BEING INVESTMENT IN THE SUBSIDIARY COMPA NY. 12. HONBLE SUPREME COURT IN S.A. BUILDERS LTD. VS. CIT, CHANDIGARH (2007) 288 IT4 1 (SC) HELD THAT, EVEN WHEN THE EXPENDITURE HAS NOT BEEN INCURRED UNDER ANY LEGAL O BLIGATION YET IS ALLOWABLE TO BE AS BUSINESS EXPENDITURE IF IT WAS I NCURRED ON GROUND OF COMMERCIAL EXPEDIENCY. SO, IN THIS CASE, WE ARE OF THE ITA NO.4217/DEL/2013 8 CONSIDERED VIEW THAT INVESTMENT IN THE OFCD BY THE ASSESSEE COMPANY IN ITS SUBSIDIARY TO UTILIZE THE LICENSE OF ADIL FOR TELECOM IS CERTAINLY A COMMERCIAL EXPEDIENCY AND IS ALLOWAB LE U/S 37 OF THE ACT AS CONTENDED IN THE ALTERNATIVE. SO, GROUND NO .2 IS DETERMINED IN FAVOUR OF THE ASSESSEE COMPANY. GROUND NO.3 13. AO/CIT (A) HAVE DISALLOWED THE GUARANTEE PAYMEN T OF RS.28,36,26,000/- BY THE ASSESSEE COMPANY TO DOT UN DER THE GUARANTEE GIVEN BY THE ASSESSEE COMPANY. THE LD. A R FOR THE ASSESSEE COMPANY CONTENDED THAT THE GUARANTEE AMOUN T INVOKED BY THE DOT IS ALSO A BUSINESS EXPENSE ALLOWABLE U/S 37 (1) OF THE ACT AND RELIED UPON THE DECISION RENDERED BY HONBLE CH ENNAI HIGH COURT IN THE CASE OF CIT VS. AMALGAMATION (P.) LTD. 108 ITR 895 , AFFIRMED BY HONBLE SUPREME COURT IN CASE OF CIT VS. AMALGAMATION (P.) LTD. (1997) 226 ITR 188 (SC) . 14. UNDISPUTEDLY, THE ASSESSEE COMPANY GAVE CORPORA TE GUARANTEE FACILITIES AVAILED BY THE ADIL, ITS SUBSI DIARY, IN FAVOUR OF THE DOT, AND IT IS ALSO NOT IN DISPUTE THAT ADIL SUFFERED HEAVY LOSSES EXCEEDING SHARE CAPITAL AND CONSEQUENTLY, TH E DOT TERMINATED THE LICENCE OF ADIL FOR RAJASTHAN AND HA RYANA FOR 11 MONTHS AND INVOKED THE GUARANTEE FOLLOWING WHICH TH E BANK HAS MADE A PAYMENT OF RS.28,36,26,000/- AND CONSEQUENTL Y, THE ITA NO.4217/DEL/2013 9 ASSESSEE COMPANY HAS PROVIDED SAID AMOUNT TO THE BA NK WHICH THE BANK PROVIDED TO THE DOT. THE RATIO OF THE JUDGMEN T OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. AMALGAMATION (P.) LTD. (SUPRA) IS THAT, LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF FURNISHING OF GUARANTEES TO ITS SUBSIDIARY COMPANY IS A BUSINESS LOSS AND AS ALLOWABLE BUSINESS EXPENSES. SO, FOLLOWING THE AFORESAID DECISION RENDERED BY HONBLE SUPREME COUR T, WE ARE OF THE CONSIDERED VIEW THAT THE AMOUNT OF RS.28,36,26, 000/- IS AN ALLOWABLE EXPENDITURE. SO, GROUND NO.3 IS DETERMIN ED IN FAVOUR OF THE ASSESSEE COMPANY. GROUND NO.4 15. AO/CIT (A) HAVE TREATED THE AMOUNT OF RS.5,29,3 4,650/- BEING THE WAIVER OF THE AMOUNT RECEIVED ON CAPITAL AMOUNT AS INCOME CHARGEABLE TO TAX IN THE YEAR OF WAIVER. AT THE VERY OUTSET, IT IS FAIRLY CONCEDED THAT COPY OF AGREEMENT TO PRO VE THE RECEIPT OF THE AMOUNT FROM SWISSCOM OR THE WAIVER OF THE LIABI LITY BY SWISSCOM HAS NOT BEEN BROUGHT ON RECORD BY THE ASSE SSEE COMPANY TO WORK OUT THE EXACT NATURE OF CONSIDERATION FOR W HICH AMOUNT IN QUESTION WAS RECEIVED FROM THE SWISSCOM. SO, IN TH E GIVEN CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT L ET THE ASSESSEE COMPANY PRODUCE COPY OF SETTLEMENT DEED ENTERED INT O BETWEEN THE SWISSCOM AND THE ASSESSEE COMPANY IN ORDER TO DECID E THE NATURE ITA NO.4217/DEL/2013 10 OF THE CONSIDERATION FOR WHICH THE AMOUNT IN QUESTI ON WAS RECEIVED. CONSEQUENTLY, THIS ISSUE IS SET ASIDE TO THE FILE OF AO TO DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE COMPANY. GROUND NO.5 16. GROUND NO.5 BEING PREMATURE NEEDS NO FINDINGS A T THIS STAGE. 17. RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE C OMPANY IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 15 TH DAY OF JANUARY, 2018. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 15 TH DAY OF JANUARY, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-IX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.