2012 (11) TMI 1133 - AT - Income Tax

Eligible deduction u/s.35ABB - variable license fees - Held that - The variable revenue share licence fee paid pursuant to the migration of the assessee to the New Telecom Policy is liable to be allowed as revenue expenditure- Appeal filed by AO stands dismissed - Decided in the favor of assessee.

Summary

Issues:
1. Eligibility for deduction u/s.35ABB - Variable license fees discrepancy.

Analysis:

Issue 1: Eligibility for deduction u/s.35ABB - Variable license fees discrepancy
The case involved an appeal against the order of the CIT(A) regarding the eligibility of the assessee for a deduction u/s.35ABB. The Assessing Officer (AO) had disallowed a significant portion of the claimed deduction related to variable license fees paid to the Department of Telecommunication. The AO allowed a deduction of &8377; 7.18 Crores instead of the claimed &8377; 33.55 Crores, resulting in an addition of &8377; 26.36 Crores to the total income of the assessee. The First Appeal Authority (FAA) overturned the AO's decision, citing a previous ITAT-Delhi order in favor of the appellant for the AY 2001-02. The FAA concluded that the revenue share license fee should be treated as revenue expenditure, thereby allowing the deduction.

In the appellate tribunal, the Departmental Representative (DR) supported the AO's order, while the Authorised Representative (AR) argued in favor of the assessee, referencing previous cases such as Bharti Cellular Limited and Bharti Airtel Limited. The tribunal noted that the issue had been decided in favor of the assessee in a previous case for the AY 2001-02. The tribunal referred to the decision in Bharti Cellular Ltd. Vs. DCIT, where it was established that the license fee paid was for the use of the right to conduct telecom business and did not create a capital asset. Following this precedent, the tribunal ruled in favor of the assessee, directing the AO to delete the addition made and allow the variable revenue share license fee as a revenue expenditure. The tribunal dismissed the appeal filed by the AO, citing decisions from different benches in Delhi, Mumbai, and Ahmedabad that were in favor of the assessee.

In conclusion, the tribunal upheld the assessee's eligibility for the deduction u/s.35ABB, resolving the discrepancy in the variable license fees and ruling in favor of treating the revenue share license fee as a revenue expenditure. The appeal filed by the AO was dismissed, and the decision was pronounced on 20th November 2012.