2016 (11) TMI 1739 - AT - Income Tax

Applicability of Section 35ABB to license fee and spectrum charges - HELD THAT - Issue is covered by the decision of the ITAT Delhi Bench in assessee s own case in respect of A.Y. 2008-09 2016 (5) TMI 34 - ITAT DELH wherein held that the expenditure incurred towards licence fee is 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 15th August 1999 should be treated as revenue expenditure. Thus capital expenditure is qualified for deduction as per Section 35ABB of the Act in the said case as per the finding of the Hon ble High Court. Thus the said issue is decided in favour of the assessee. Lease rent paid to IBM - HELD THAT - This issues covered in favour of the assessee by the decision of the ITAT Delhi Bench in assessee s own case for A.Y. 2008-09 2016 (5) TMI 34 - ITAT DELH wherein the Tribunal held that the service cum lease agreement between the assessee and IBM as well as Nortel clearly lays liability on IBM and substance of the transaction suggests that the beneficial ownership remained with IBM and not with assessee and therefore the assessee had rightly claimed the entire lease rent paid by it to IBM. TDS u/s 194H - discount allowed to distributors on the sale of prepaid cards which carry Right to Use of Airtime - HELD THAT - Addition under Section 40(a)(ia) has to be deleted as the assessee was not in default u/s 201 of the Act in respect of applicability of Section 194H - The Assessee company was carrying out telecom business in the Rajasthan Circle and NESA. The Jaipur Bench of ITAT held that the assessee is not in default in Assessment Year 2004-05 to 2008-09 and Assessment Year 2009-10. Similarly in the case of assessee itself has held that assessee to be not in default u/s 194H of the Act. Thus no tax was determined as deductible under Chapter XVIIB. Computational provisions of Section 40(a)(ia) cannot operate if machinery provisions of Chapter XVII-B Section 201 read with Section 194H of the Act are not applicable. TDS u/s 194J - Payment made by the assessee company for roaming charges to other telecom service providers - HELD THAT - Jaipur Bench of ITAT recorded a finding in 2015 (7) TMI 175 - ITAT JAIPUR held that these charges are not fees for rendering any technical services as envisaged in Section 194J - Once the order u/s 201(1) of the Act is set aside then the issue related to Section 40(a) (ia) does not sustain. Thus the disallowance under Section 40(a)(ia) of the Act in respect of free airtime to distributors and roaming charges by the Assessing Officer does not sustain - Decided in favour of assessee.

Issues Involved:
1. Applicability of Section 35ABB to license fee and spectrum charges.
2. Addition on account of lease rent paid to IBM.
3. Applicability of Section 194H to discount allowed to distributors on the sale of prepaid cards.
4. Applicability of Section 194J to payment made for roaming charges to other telecom service providers.

Detailed Analysis:

1. Applicability of Section 35ABB to License Fee and Spectrum Charges:
The core issue revolves around whether the license fee and spectrum charges should be treated as capital or revenue expenditure. The Tribunal referenced the Hon'ble Delhi High Court's decision, which held that the expenditure incurred towards license fee is partly revenue and partly capital. Specifically, the license fee payable up to 31st July 1999 should be treated as capital expenditure, while the fee on a revenue-sharing basis after 15th August 1999 should be treated as revenue expenditure. Consequently, capital expenditure qualifies for deduction under Section 35ABB. This precedent was followed for various assessment years, including 2003-04, 2004-05, 2006-07, and 2007-08, thus deciding the issue in favor of the assessee.

2. Addition on Account of Lease Rent Paid to IBM:
The Tribunal addressed the lease rent paid to IBM amounting to Rs. 6,23,19,912/-. It was determined that the service-cum-lease agreement between the assessee and IBM indicated that the beneficial ownership remained with IBM. Therefore, the assessee correctly claimed the entire lease rent paid to IBM. This decision was consistent with the Tribunal's earlier ruling for the assessment year 2008-09.

3. Applicability of Section 194H to Discount Allowed to Distributors on the Sale of Prepaid Cards:
The Tribunal examined whether the discount allowed to distributors on the sale of prepaid cards should attract TDS under Section 194H. The Assessing Officer had disallowed Rs. 107,94,10,000/- under Section 40(a)(ia). The Tribunal noted that while the Hon'ble Jurisdictional High Court ruled against the assessee on the applicability of Section 194H, other benches (ITAT Jaipur and Gauhati) held that the assessee was not in default under Section 201 regarding TDS on discounts to distributors. Consequently, no tax was determined as deductible under Chapter XVIIB, and the computational provisions of Section 40(a)(ia) could not operate if the machinery provisions of Chapter XVII-B (Section 201 read with Section 194H) were not applicable. Thus, the addition under Section 40(a)(ia) was deleted.

4. Applicability of Section 194J to Payment Made for Roaming Charges to Other Telecom Service Providers:
The Tribunal considered whether the payment for roaming charges to other telecom service providers should be subjected to TDS under Section 194J. The Assessing Officer had disallowed Rs. 11,95,70,267/- under Section 40(a)(ia). The Tribunal referred to the ITAT Jaipur Bench's decision, which held that the provisions of Section 194J were not applicable as the process of providing roaming services did not require human intervention. The Tribunal concluded that these charges were not fees for technical services as envisaged in Section 194J. Therefore, the addition under Section 40(a)(ia) was deleted.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal. The Tribunal's decisions were based on consistent precedents and detailed examinations of the relevant sections and prior rulings. The order was pronounced in open court on 8th November 2016.

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