2016 (12) TMI 1543 - HC - Income Tax

Applicability of Section 35ABB vis-a-vis spectrum charges paid by the assessee - charges paid after the change in the telecom policy in 1999 - Held that - The question of law sought to be urged is squarely covered by the previous decision of this Court in the assessee s case for another assessment year CIT v. Bharti Hexacom Ltd.(2013 (12) TMI 1115 - DELHI HIGH COURT ). Therefore this question cannot be framed and is answered against the revenue. Treatment by the assessee in its books of accounts to the lease rent paid to IBM for use of its software and equipments should have been amortized or the assessee permitted to claim that they were revenue expenses - Held that - This Court holds that the impugned order has correctly appreciated that the treatment of a particular transaction in the books of accounts is inconclusive as of its true nature which has to be adjudged on an independent consideration by the Assessing Officer. In this case therefore the ITAT s conclusion was justified that the expenditure was essentially revenue in character. No question of law arises

Summary

Issues:
1. Applicability of Section 35ABB vis-a-vis spectrum charges paid by the assessee.
2. Treatment of lease rent paid to IBM for use of software and equipments - whether to be amortized or claimed as revenue expenses.

Analysis:

Issue 1:
The first issue pertains to the applicability of Section 35ABB concerning spectrum charges paid by the assessee after a change in the telecom policy in 1999. The Court noted that the question of law raised by the revenue was already addressed in a previous decision related to the assessee's case for another assessment year. The Court referred to CIT v. Bharti Hexacom Ltd. and concluded that the issue was squarely covered by the previous decision. As a result, the question could not be framed, and the answer was provided against the revenue.

Issue 2:
The second issue raised in the appeal focused on the treatment of lease rent paid to IBM for the use of software and equipments by the assessee. The ITAT examined the documents and related agreements to determine the nature of the transaction. The Court observed that the treatment of a transaction in the books of accounts does not conclusively determine its true nature. It emphasized that the substance of the transaction must be considered to arrive at a proper conclusion. The Court agreed with the ITAT's finding that the expenditure was revenue in character, as the beneficial ownership remained with IBM based on the substance of the transaction. It was held that the Assessing Officer must independently assess the true nature of the transaction, irrespective of its accounting treatment. Consequently, the Court dismissed the appeal, stating that no question of law arose in this regard.

In conclusion, the High Court's judgment addressed the two issues raised by the revenue, providing detailed analysis and reasoning for each. The Court's decision was based on the interpretation of relevant legal provisions and precedents, emphasizing the importance of considering the substance of transactions over their accounting treatment for determining tax implications.