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Issues Involved:
1. Deletion of addition of Rs. 38,66,12,036 being interest on license fee payable. 2. Deletion of addition of Rs. 1,28,60,000 being royalty payable to the Wireless Planning Commission (WPC). 3. Deletion of addition of Rs. 7,96,300 related to fees paid to the Registrar of Companies (RoC). Issue-wise Detailed Analysis: 1. Deletion of Addition of Rs. 38,66,12,036 Being Interest on License Fee Payable: The Revenue's first ground of appeal challenged the CIT(A)'s decision to delete the addition of Rs. 38,66,12,036, representing interest on license fee payable, arguing that under Section 35ABB of the IT Act, 1961, such expenses are allowable only on actual payment. The assessee, a company engaged in providing cellular telephony services in Gujarat, included this amount in its financial expenses. The AO contended that since the license fee is a capital expenditure under Section 35ABB, the interest on overdue license fee should also be treated similarly and allowed only on actual payment. The AO alternatively argued that it could be disallowed under Section 43B, which allows deductions on actual payment for sums payable by way of tax, duty, cess, or fee. The assessee countered that the interest was a contractual obligation and not a fee under Section 43B, and thus, it should be deductible on an accrual basis. The CIT(A) agreed with the assessee, ruling that the interest was a compensatory payment for depriving the Government of India of funds and not a capital expenditure under Section 35ABB, nor a fee under Section 43B. Upon review, the Tribunal upheld the CIT(A)'s decision, stating that the interest payable on overdue license fee does not partake the character of capital expenditure merely because it relates to a capital asset. The Tribunal referenced the Supreme Court's decision in India Cements Ltd. vs. CIT, which allowed interest on borrowings as a business expenditure irrespective of the purpose of the loan. Thus, the Tribunal confirmed that the interest on license fee is deductible on an accrual basis, dismissing the Revenue's appeal on this ground. 2. Deletion of Addition of Rs. 1,28,60,000 Being Royalty Payable to the Wireless Planning Commission (WPC): The second ground of appeal concerned the deletion of Rs. 1,28,60,000, claimed by the assessee as royalty payable to the WPC for the use of radio frequency. The AO treated this as a capital expenditure under Section 35ABB and also invoked Section 43B to disallow the claim. The CIT(A) found that the WPC royalty was a revenue expenditure incurred in connection with the operation of cellular services and not covered under Section 35ABB. The CIT(A) also ruled that it was a contractual obligation, making Section 43B inapplicable. The Tribunal reviewed the license agreement, particularly Clause 19.4, which clarified that the annual license fee does not include WPC royalty, payable separately based on actual usage. The Tribunal agreed that the royalty payment is a part of the network operation expenditure, not resulting in any enduring benefit, and thus, should be allowed as a deduction on an accrual basis. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground. 3. Deletion of Addition of Rs. 7,96,300 Related to Fees Paid to the Registrar of Companies (RoC): The third ground of appeal involved the deletion of Rs. 7,96,300, claimed by the assessee for fees paid to the RoC for increasing share capital. The AO disallowed this under Section 350 of the IT Act, while the CIT(A) allowed the claim, referencing the Rajasthan High Court's decision in CIT vs. Multi Metals Ltd. The Tribunal noted the Supreme Court's decisions in Punjab State Industrial Development Corporation Ltd. vs. CIT and Brooke Bond India Ltd. vs. CIT, which dealt with whether RoC fees are capital or revenue expenditure. The Tribunal found no conflict between these Supreme Court decisions and the Rajasthan High Court's ruling that such fees fall within Section 35D(2)(c)(iv), allowing 1/10th of the expenditure incurred for public subscription of shares. Thus, the Tribunal confirmed the CIT(A)'s decision, dismissing the Revenue's appeal on this ground. Conclusion: The appeal by the Revenue was dismissed in its entirety, with the Tribunal upholding the CIT(A)'s decisions on all grounds.
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