Bharti Celluar Ltd.,, vs Assessee

The present appeal has come up for hearing by way of a remand directed by the Hon'ble High Court vide their order dated 19.12.2013 in ITA no.- 1679/Del/2010 in the case of CIT vs Bharti Cellular Ltd. along with batch of other appeals including ITA No.-893/Del/2010 wherein the Revenue has challenged the correctness of the order passed by the ITAT on 29.05.2009.

2. Ld. AR inviting attention to the order of the Hon'ble High Court submitted that the Remand in the present proceedings is limited to the issue addressed in Ground No.-4 raised by the assessee in its appeal. It was his submission that the issue had been decided by the ITAT in assessee's favour however the Hon'ble High Court has remanded the same to the ITAT with the direction to decide the issue on facts wherein the Hon'ble High Court deciding the issue on facts has held that if the payment for interest pertains to the period prior to the 31.07.1999 then it has to be capitalized u/s 35ABB of the Act. It was his stand that on behalf of the assessee he was instructed to state that the payment pertains to the prior period and thus is on account of capital 2 I.T.A .No.-5335/Del/2003

expenditure entitled to the benefit of Section 35ABB. On going through the material available on record the Ld. CIT DR, Smt. Sulekha Verma agreed with the submissions of the Ld. AR.

3. The record shows that the assessee amongst other grounds had raised the following ground as Ground No.-4 before the ITAT:-

4. "The learned AO had erred on facts and in law in disallowing Rs.1,75,17,300/- claimed by the appellant as interest on licence fee paid to DoT Government of India. The learned CIT(A) has further erred in confirming the addition made by the AO and in holding the interest expenditure of Rs.1,75,17,300/- to be capital expenditure."

3.1. The said ground was disposed by the Co-ordinate Bench in the aforesaid order dated 29.05.2009 vide para 11 in the following manner:-

11. "In Ground No.4, the assessee has challenged the action of the Ld. CIT(A) in confirming the action of the AO in disallowing the interest on the licence fee paid to the DOT, Govt. of India holding the same to to capital expenditure on the ground that the variable revenue sharing fee paid had been held as capital expenditure. As we have already held that the variable revenue sharing fee paid pursuant to the migration of the assessee to the New Telecom Policy of 1999 is revenue expenditure, consequently, the interest on the licence fee paid would also be in the revenue field. In the circumstances, the AO is directed to delete the said addition and grant the assessee benefit of this expenditure u/s 37(1) of the Act. In the circumstances, Ground No.4 is allowed."

3.2. Apart from other issues the correctness of the above finding was challenged by the Revenue before the Hon'ble High Court in appeal. The Hon'ble High Court considering the arguments on facts and examining the variable licenses fee paid by the respondents under the India Telecom Act, 1885, and the Indian Wireless Fee Act, 1933 payable under the New Telecom Policy 1999 or 1994, Agreement was called upon to decide whether the payments were of the nature of revenue expenditure or capital expenditure which was required to be amortized u/s 35ABB of the Income Tax Act, 1961.

Considering the issues the Hon'ble High Court came to the following conclusion in para 47:-

3 I.T.A .No.-5335/Del/2003 (i) "The expenditure incurred towards licence fee is partly revenue and partly capital. Licence fee payable upto 31 st 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 the Act."

4. The remand accordingly was made qua the issue addressed in Ground No.-4 by the Hon'ble High Court vide paras 49 to 52 holding as under:-

49. In ITA Nos.893/2010 and 1333/2010, an additional issue arises for consideration. This additional issue relates to interest on delayed payment of license fee and whether the same was capital or revenue expenditure.

By order dated 18th September, 2012, the following substantial question of law was admitted for hearing and disposal:-

"Whether the Tribunal fall into error in holding that the interest on the delayed payment of license fee also partook of the same nature as license fee and was deductible as revenue expenditure?"

50. We are inclined to pass an order of remand on this question as we find that the facts on the said aspect are not lucid and clear. In the assessment- year 2000-01, the assessment year subject matters of ITA 893/2010 and 1333/2010 in the case of Bharti Cellular Ltd. and Bharti Telenet Ltd. now known as Bharti Infotel Ltd., the assessee had paid interest of Rs.1.75 crores and Rs.2.24 crores to the Department of Telecommunication for delayed payment of license fee. The Assessing Officer disallowed the said payments observing that these were on capital account. The assessment order records that no details had been furnished and the expenses pertained to prior period. The payment was considered to be capital in nature because the license fee was also capital expenditure.

51. Commissioner (Appeals) in the case of Bharti Cellular Ltd. (ITA 893/2010) held that interest paid was capital expenditure because license fee itself was capital in nature. The said opinion was followed by Commissioner (Appeals) in the case of Bharti Telenet Ltd., now known as Bharti Infotel Ltd. The answer to the question would depend upon the finding whether payment related to license fee payable period prior to 31st July, 1999 or was for the subsequent period. If interest paid was in respect of license fee payable for the period prior to 31st July, 1999, it will have to be capitalised. Similarly, if the interest was payable on license fee for the period post 31st July, 1999, it should be treated as revenue in nature/character. The contention that it was a prior period expense does not appeal to us and has to be rejected, as the interest was paid during the year in question.

52. Learned counsel for the assessees has submitted that there cannot be any factual dispute that this interest was paid to the Department of 4 I.T.A .No.-5335/Del/2003

Telecommunication on delayed payment of license fee under the 1999 policy and not on account of license fee payable for period prior to 31st July, 1999. We cannot from the facts on record, decipher the exact details as this aspect has not been examined by the tribunal. The tribunal has held that interest paid was revenue in nature because the license fee payable itself was revenue in nature, irrespective of fee payable prior to 31st July, 1999. We have held to the contrary. The said question of law, therefore, is answered in favour of the Revenue and against the respondent-assessee but with an order of remand to decide the controversy afresh keeping in view the observations made above."

5. In view of the above and taking into consideration the submissions advanced by the Ld. AR on behalf of the assessee which were agreed to by the Ld. CIT DR, we confirm the finding arrived at by the CIT(A in para 5.3 to the extent that the interest accrued on delayed payments on the license fee is a capital expenditure u/s 35ABB since the payment was for the period prior to 31.07.1999. Accordingly we dismiss the ground raised by the assessee. The order is pronounced in the open court on 02nd of January 2015.

Sd/- Sd/-

(N.K.SAINI) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 02 /01/2015 *Amit Kumar*

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI