ACIT, New Delhi V. M/s Microwave Communication Ltd., New Delhi

ITA 4386/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1493 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 10-08-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K BANSAL SENIOR
• Keywords: Capital asset; Opportunity of being heard; Question of law; Revenue expenditure; Capital expenditure; Set aside
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4386/DEL./2016 (ASSESSMENT YEAR : 2009-10) ACIT, VS. M/S. MICROWAVE COMMUNICATION LTD. CENTRAL CIRCLE 25, 1 ST FLOOR, 8, MASJID MOTH, NEW DELHI. GREATER KAILASH PART II, NEW DELHI 110 048. (PAN : AAACM3430B) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI N.K. BANSAL, SENIOR DR DATE OF HEARING : 03.06.2019 DATE OF ORDER : 10.06.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ACIT, CENTRAL CIRCLE 25, NEW DELHI (HER EINAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 04.05.2016 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, NEW DELHI Q UA THE ASSESSMENT YEAR 2009-10 ON THE GROUNDS INTER ALIA T HAT :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE INTEREST PAYMENT OF RS. 1,75,49,816/- MADE BY THE AO ON ACCO UNT OF DELAYED PAYMENT OF LICENSE FEE TO DEPARTMENT OF TELECOMMUNICATIONS WITHOUT APPRECIATING THE FACT TH AT THE ITA NO.4386/DEL./2016 2 LICENSE FEE IS A CAPITAL EXPENDITURE AND ANY PAYMEN T OF LICENSE FEE INCLUDING THE INTEREST FALL WITHIN THE PURVIEW OF SECTION 35ABB. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN DELETING T HE INTEREST OF RS.1,75,49,816/- MADE BY AO ON ACCOUNT OF DELAYED P AYMENT OF LICENSE FEE TO DEPARTMENT OF TELECOMMUNICATIONS WIT HOUT APPRECIATING THE FACT THAT THE HON'BLE DELHI HIGH C OURT HAS REMANDED THE MATTER BACK TO THE AO VIDE ITS ORDER D ATED 23.03.2015(ITA NO. 1738/2010, 1739/2010 AND 799/201 4) BY HOLDING THAT IF PAYMENT WAS RELATED TO LICENSE FEE PAYABLE PERIOD PRIOR TO 31 ST JULY 1999 THEN IT WOULD BE CAPITALIZED AND IF PAYMENT WAS RELATED TO THE SUBSEQUENT PERIOD THEN I T WAS REVENUE IN NATURE. 3. THAT THE ORDER OF THE CIT(A) IS PERVERSE, ERRONE OUS AND IS NOT TENABLE ON FACTS AND IN LAW. 4. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE IS INTO THE BUSI NESS OF PROVIDING RADIO PAGING SERVICES, CALL CENTRE SERVICES AND ALS O TRADING IN PAGERS AND ACCESSORIES. ASSESSEES MAJOR CLIENTS A RE M/S. BHARTI AIRTEL LTD., HDFC BANK, MOTHER DAIRY, DELHI AND TAT A TELESERVICES IN DELHI. ASSESSING OFFICER NOTICED T HAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.1,75,49,816/- ON ACCOUN T OF INTEREST ON LICENCE FESS AND OTHERS HAVING BEEN DEBITED TO P ROFIT & LOSS ACCOUNT BECAUSE THERE IS A DELAY IN PAYMENT OF LICE NCE FEE PAID TO DEPARTMENT OF TELECOMMUNICATION (DOT), WHICH FALLS WITHIN THE PURVIEW OF PROVISION CONTAINED UNDER SECTION 35ABB OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT). AO CAL LED UPON THE ITA NO.4386/DEL./2016 3 ASSESSEE TO EXPLAIN AS TO WHY LICENCE FEE EXPENDITU RE IS NOT TREATED AS CAPITAL EXPENDITURE. DECLINING THE CONTENTIONS RAISED BY THE ASSESSEE, AO PROCEEDED TO HOLD THAT INTEREST PAID I N ACQUIRING LICENSES TO OPERATE TELECOMMUNICATION SERVICES IS A PART OF COST OF CAPITAL ASSETS FOR ACQUIRING THE RIGHT AND SAME IS NOT ALLOWABLE U/S 36(1) AND 37 (1) OF THE ACT AND THEREBY MADE ADDITI ONS THEREOF TO THE TOTAL INCOME OF THE ASSESSEE. 3. ASSESSEE CARRIED THE MATTER BY WAY OF AN APPEAL BEFORE THE LD. CIT (A) WHO HAS DELETED THE ADDITION BY PARTLY ALLOWING THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. ASSESSEE HAS NOT PREFERRED TO PUT IN APPEARANCE DESPITE ISSUANCE OF THE NOTICE AND CONSEQUENTLY, WE PROCEED ED TO DECIDE THE PRESENT APPEAL WITH THE ASSISTANCE OF THE LD. S ENIOR DR AS WELL AS ON THE BASIS OF DOCUMENTS AVAILABLE ON THE FILE. 5. WE HAVE HEARD THE LD. SR. DEPARTMENTAL REPRESENT ATIVE FOR THE REVENUE TO THE APPEAL, GONE THROUGH THE DOCUMEN TS RELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. AT THE VERY OUTSET, LD. DR FOR THE REVENUE HAS B ROUGHT TO OUR NOTICE ORDER DATED 23.03.2015 PASSED BY THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE BEARING ITA 1738/2010 & ITA ITA NO.4386/DEL./2016 4 1739/2010 FOR EARLIER YEARS WHEREBY IDENTICAL ISSUE AS TO WH ETHER PAYMENT OF INTEREST ON LICENCE FEES IS TO BE TREATE D AS REVENUE OR CAPITAL IN NATURE HAS BEEN REMANDED BACK TO THE ASS ESSING OFFICER TO PASS APPROPRIATE ORDER IN THE LIGHT OF THE DIREC TIONS ISSUED BY HONBLE HIGH COURT BY RETURNING FOLLOWING FINDINGS :- 4. THE REVENUE URGES THAT THE INTEREST ON PAYMENT QUA THE LICENSE FEE, COULD NOT BE AMORTISED IN VIEW OF SECT ION 35ABB OF THE INCOME TAX ACT. IN OTHER WORDS, THE QUESTION IS WHETHER THE LICENCE FEE PAYABLE BY TELECOM SERVICE PROVIDERS TO THE DEPARTMENT OF TELECOMMUNICATIONS IS TO BE TREATED A S CAPITAL OR REVENUE EXPENDITURE. IT IS NOT DISPUTED THAT THIS I SSUE WAS CONSIDERED BY DIVISION BENCH OF THIS COURT IN JUDGM ENT REPORTED AS COMMISSIONER OF INCOME TAX V. BHARTI HEXACOM (20 14) 221 TAXMAN 323 (DEL.). THE FINDINGS OF THE SAID JUDGMEN T AND THE OPERATIVE DIRECTIONS ARE IN THE FOLLOWING TERMS : 47. IN VIEW OF THE AFORESAID FINDINGS, THE SUBSTA NTIAL QUESTION MENTIONED ABOVE IN ITEM NOS.1 TO 9 IS ANSW ERED IN THE FOLLOWING MANNER: (I) THE EXPENDITURE INCURRED TOWARDS LICENCE FEE I S PARTLY REVENUE AND PARTLY CAPITAL. LICENCE FEE PAYABLE UPTO 31ST JULY, 1999 SHOULD BE TREATED AS CAPITAL EXPENDITURE AND LICENCE FEE ON REVENUE SHARING BASIS AFTER 1ST AUGUST, 1999 SHOULD BE TREATED AS REVENUE EXPENDITURE. (II) CAPITAL EXPENDITURE WILL QUALIFY FOR DEDUCTIO N AS PER SECTION35ABB OF THE ACT. 48. THE APPEAL ITA NO. 417/2013 BY THE REVENUE IN THE CASE OF HUTCHISON ESSAR PVT. LTD., PERTAINS TO THE ASSESSMENT YEAR 1999-2000I.E. YEAR ENDING 31ST MARC H, 1999. IT IS FOR THE PERIOD PRIOR TO THE PERIOD 31ST JULY, 1999. AS PER THE DISCUSSION ABOVE, THE LICENCE FEE PAYABLE ON OR BEFORE 31ST JULY, 1999 SHOULD BE TREATED AS C APITAL EXPENDITURE AND THE LICENCE FEE PAYABLE THEREAFTER SHOULD BE TREATED AS REVENUE EXPENDITURE. IN VIEW OF THE AFORESAID POSITION, THE QUESTION OF LAW ADMITTED FO R HEARING IN THIS APPEAL AS RECORDED IN THE ORDER DAT ED 21ST AUGUST, 2013, HAS TO BE ANSWERED IN FAVOUR OF THE R EVENUE AND AGAINST THE RESPONDENT ASSESSEE. ITA NO.4386/DEL./2016 5 49. IN ITA NOS.893/2010 AND 1333/2010, AN ADDITIONAL ISSUE ARISES FOR CONSIDERATION. THIS ADD ITIONAL ISSUE RELATES TO INTEREST ON DELAYED PAYMENT OF LIC ENSE FEE AND WHETHER THE SAME WAS CAPITAL OR REVENUE EXPENDI TURE. BY ORDER DATED 18TH SEPTEMBER 2012, THE FOLLOWING SUBSTANTIAL QUESTION OF LAW WAS ADMITTED FOR HEARIN G AND DISPOSAL:- WHETHER THE TRIBUNAL FALL INTO ERROR IN HOLDING THAT THE INTEREST ON THE DELAYED PAYMENT OF LICENSE FEE ALSO PARTOOK OF THE SAME NATURE AS LICENSE FEE AND WAS DEDUCTIBLE AS REVENUE EXPENDITURE? 50. WE ARE INCLINED TO PASS AN ORDER OF REMAND ON T HIS QUESTION AS WE FIND THAT THE FACTS ON THE SAID ASPE CT ARE NOT LUCID AND CLEAR. IN THE ASSESSMENT-YEAR 2000-01 , THE ASSESSMENT YEAR SUBJECT MATTERS OF ITA 893/2010 AND 1333/2010 IN THE CASE OF BHARTI CELLULAR LTD. AND B HARTI TELENET LTD. NOW KNOWN AS BHARTI INFOTEL LTD., THE ASSESSEE HAD PAID INTEREST OF RS.1.75 CRORES AND RS .2.24 CRORES TO THE DEPARTMENT OF TELECOMMUNICATION FOR DELAYED PAYMENT OF LICENSE FEE. THE ASSESSING OFFIC ER DISALLOWED THE SAID PAYMENTS OBSERVING THAT THESE W ERE ON CAPITAL ACCOUNT. THE ASSESSMENT ORDER RECORDS THAT NO DETAILS HAD BEEN FURNISHED AND THE EXPENSES PERTAIN ED TO PRIOR PERIOD. THE PAYMENT WAS CONSIDERED TO BE CAPI TAL IN NATURE BECAUSE THE LICENSE FEE WAS ALSO CAPITAL EXPENDITURE. 51. 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. THE SAID OPINION WAS FOLLOWED BY COMMISSION ER (APPEALS) IN THE CASE OF BHARTI TELENET LTD., NOW K NOWN AS BHARTI INFOTEL LTD. THE ANSWER TO THE QUESTION WOUL D DEPEND UPON THE FINDING WHETHER PAYMENT RELATED TO LICENSE FEE PAYABLE PERIOD PRIOR TO 31ST JULY, 1999 OR WAS FOR THE SUBSEQUENT PERIOD. IF INTEREST PAID WAS IN RESPECT OF LICENSE FEE PAYABLE FOR THE PERIOD PRIOR TO 31ST JULY, 1999 , IT WILL HAVE TO BE CAPITALISED. SIMILARLY, IF THE INTEREST WAS PAYABLE ON LICENSE FEE FOR THE PERIOD POST31ST JULY, 1999, IT SHOULD BE TREATED AS REVENUE IN NATURE/CHARACTER. THE CONTEN TION THAT IT WAS A PRIOR PERIOD EXPENSE DOES NOT APPEAL TO US AND HAS TO BE REJECTED, AS THE INTEREST WAS PAID DURING THE YEAR IN QUESTION. 52. LEARNED COUNSEL FOR THE ASSESSEES HAS SUBMITTED THAT THERE CANNOT BE ANY FACTUAL DISPUTE THAT THIS INTER EST WAS PAID TO THE DEPARTMENT OF TELECOMMUNICATION ON DELA YED PAYMENT OF LICENSE FEE UNDER THE 1999 POLICY AND NO T ON ACCOUNT OF LICENSE FEE PAYABLE FOR PERIOD PRIOR TO 31ST JULY, 1999. WE CANNOT FROM THE FACTS ON RECORD, DECIPHER THE EXACT DETAILS AS THIS ASPECT HAS NOT BEEN EXAMINED BY THE ITA NO.4386/DEL./2016 6 TRIBUNAL. THE TRIBUNAL HAS HELD THAT INTEREST PAID WAS REVENUE IN NATURE BECAUSE THE LICENSE FEE PAYABLE I TSELF WAS REVENUE IN NATURE, IRRESPECTIVE OF FEE PAYABLE PRIO R TO 31ST JULY, 1999. WE HAVE HELD TO THE CONTRARY. THE SAID QUESTION OF LAW, THEREFORE, IS ANSWERED IN FAVOUR OF THE REV ENUE AND AGAINST THE RESPONDENT-ASSESSEE BUT WITH AN ORDER O F REMAND TO DECIDE THE CONTROVERSY AFRESH KEEPING IN VIEW TH E OBSERVATIONS MADE ABOVE. 5. THE QUESTIONS OF LAW URGED BY THE REVENUE ARE TH EREFORE COVERED IN TERMS OF THE ABOVE JUDGMENT WHICH THE CO URT FOLLOWS. THE MATTER IS ACCORDINGLY REMITTED TO AO, WHO SHALL PASS APPROPRIATE ORDERS IN THE LIGHT OF THE DIRECTIONS C ONTAINED IN PARA 51 AND 52 (EXTRACTED ABOVE). THE QUESTION OF LAW IS DE CIDED IN FAVOUR OF THE REVENUE. THE APPEALS ARE PARTLY ALLOWED. 7. KEEPING IN VIEW THE FACT THAT IDENTICAL ISSUE AS TO WHETHER MAKING PAYMENT OF LICENCE FEE INCLUDING INTEREST IS A CAPITAL EXPENDITURE FALLING WITHIN THE PURVIEW OF SECTION 3 5ABB HAS ALREADY BEEN REMANDED BACK BY THE HONBLE HIGH COUR T IN ASSESSEES OWN CASE TO AO TO DECIDE AFRESH IN VIEW OF THE DIRECTIONS MADE THEREIN, THE SAME ISSUE QUA AY 2009 -10 IS ALSO REMANDED BACK TO THE AO TO DECIDE IN VIEW OF THE DI RECTIONS ISSUED BY HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE (SUPRA), AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE. CONSEQUENTLY, APPEAL FILED BY THE REVENUE IS HEREBY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 10 TH DAY OF JUNE, 2019. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 10 TH DAY OF JUNE, 2019/TS ITA NO.4386/DEL./2016 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-I, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.