IN HIGH COURT OF DELHI AT NEW DELHI Decided on 23rd March, 2015 ITA 799/2014 COMMISSIONER OF INCOME TAX (CENTRAL)-III Appellant versus MICROWAVE COMMUNICATIONS LTD. Respondent ITA 1738/2010 ITA 1739/2010 CIT Appellant versus MICROWAVE COMMUNICATIONS LTD Respondent Presence : Ms. Suruchi Aggarwal, sr. standing counsel for revenue Ms. Poonam Ahuja and Mr. Rohit Kumar Gupta, Advs. for assessee CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K.GAUBA MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) 1. Admit. 2. Ms. Poonam Ahuja, Advocate accepts notice. 3. With consent of counsel matter was finally heard. 4. revenue urges that interest on payment qua license fee, could not be amortised in view of Section 35ABB of Income Tax Act. ITA 799/2014 & conn. Page 1 In other words, question is whether licence fee payable by telecom service providers to Department of Telecommunications is to be treated as capital or revenue expenditure. It is not disputed that this issue was considered by Division Bench of this Court in judgment reported as Commissioner of Income Tax V. Bharti Hexacom (2014) 221 Taxman 323 (Del.). findings of said judgment and operative directions are in following terms : 47. In view of aforesaid findings, substantial question mentioned above in item Nos.1 to 9 is answered in following manner: (i) 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 1st August, 1999 should be treated as revenue expenditure. (ii) Capital expenditure will qualify for deduction as per Section 35ABB of Act. 48. appeal ITA No. 417/2013 by Revenue in case of Hutchison Essar Pvt. Ltd., pertains to assessment year 1999- 2000 i.e. year ending 31st March, 1999. It is for period prior to period 31st July, 1999. As per discussion above, licence fee payable on or before 31st July, 1999 should be treated as capital expenditure and licence fee payable thereafter should be treated as revenue expenditure. In view of aforesaid position, question of law admitted for hearing in this appeal as recorded in order dated 21st August, 2013, has to be answered in favour of revenue and against respondent assessee. 49. In ITA Nos.893/2010 and 1333/2010, additional issue arises for consideration. This additional issue relates to interest on delayed payment of license fee and whether same was capital or revenue expenditure. By order dated 18th September, ITA 799/2014 & conn. Page 2 2012, following substantial question of law was admitted for hearing and disposal:- Whether Tribunal fall into error in holding that interest on delayed payment of license fee also partook of same nature as license fee and was deductible as revenue expenditure? 50. We are inclined to pass order of remand on this question as we find that facts on said aspect are not lucid and clear. In assessment-year 2000-01, assessment year subject matters of ITA 893/2010 and 1333/2010 in case of Bharti Cellular Ltd. and Bharti Telenet Ltd. now known as Bharti Infotel Ltd., assessee had paid interest of Rs.1.75 crores and Rs.2.24 crores to Department of Telecommunication for delayed payment of license fee. Assessing Officer disallowed said payments observing that these were on capital account. assessment order records that no details had been furnished and expenses pertained to prior period. payment was considered to be capital in nature because license fee was also capital expenditure. 51. Commissioner (Appeals) in case of Bharti Cellular Ltd. (ITA 893/2010) held that interest paid was capital expenditure because license fee itself was capital in nature. said opinion was followed by Commissioner (Appeals) in case of Bharti Telenet Ltd., now known as Bharti Infotel Ltd. answer to question would depend upon finding whether payment related to license fee payable period prior to 31st July, 1999 or was for subsequent period. If interest paid was in respect of license fee payable for period prior to 31st July, 1999, it will have to be capitalised. Similarly, if interest was payable on license fee for period post 31st July, 1999, it should be treated as revenue in nature/character. contention that it was prior period expense does not appeal to us and has to be rejected, as interest was paid during year in question. 52. Learned counsel for assessees has submitted that there cannot be any factual dispute that this interest was paid to ITA 799/2014 & conn. Page 3 Department of Telecommunication on delayed payment of license fee under 1999 policy and not on account of license fee payable for period prior to 31st July, 1999. We cannot from facts on record, decipher exact details as this aspect has not been examined by tribunal. tribunal has held that interest paid was revenue in nature because license fee payable itself was revenue in nature, irrespective of fee payable prior to 31st July, 1999. We have held to contrary. said question of law, therefore, is answered in favour of Revenue and against respondent-assessee but with order of remand to decide controversy afresh keeping in view observations made above. 5. questions of law urged by revenue are therefore covered in terms of above judgment which Court follows. matter is accordingly remitted to AO, who shall pass appropriate orders in light of directions contained in para 51 and 52 (extracted above). question of law is decided in favour of revenue. appeals are partly allowed. S. RAVINDRA BHAT (JUDGE) R.K.GAUBA (JUDGE) MARCH 23, 2015 vld ITA 799/2014 & conn. Page 4 Commissioner of Income-tax (Central)-III v. Microwave Communication Ltd