Facts of the Case

The dispute in the present case concerned the treatment of licence fee paid by telecom service providers to the Department of Telecommunications and the nature of interest paid on delayed payment of such licence fee.

The Revenue challenged the order of the Tribunal on the ground that the interest on delayed payment of licence fee could not be amortised under Section 35ABB of the Income Tax Act.

The central issue was whether the telecom licence fee and the corresponding interest paid on delayed payment should be treated as capital expenditure or revenue expenditure. The Court noted that the issue had already been considered in the earlier judgment of CIT vs Bharti Hexacom.

Issues Involved

  1. Whether telecom licence fee payable to the Department of Telecommunications is capital expenditure or revenue expenditure?
  2. Whether interest paid on delayed payment of licence fee takes the same character as the licence fee itself?
  3. Whether such interest qualifies for deduction under Section 35ABB?

Petitioner’s Arguments (Revenue)

  • The Revenue contended that interest on delayed payment of licence fee could not be amortised under Section 35ABB.
  • It was argued that where the principal licence fee was capital in nature, the interest attributable thereto should also be capitalised.
  • The Revenue relied on the earlier judicial findings in Bharti Hexacom for determination of the issue.

Respondent’s Arguments (Assessee)

  • The assessee argued that the interest paid on delayed payment of licence fee under the 1999 telecom policy was revenue expenditure.
  • It was submitted that the delayed payment interest pertained to revenue-sharing licence fee payable after 31 July 1999 and should therefore be treated as revenue in nature.
  • The assessee further contended that there was no factual dispute regarding the period to which such payment related.

Court Findings / Order

The Delhi High Court followed its earlier decision in Commissioner of Income Tax vs Bharti Hexacom (2014) 221 Taxman 323 (Del.) and reiterated the legal position:

  1. Licence fee payable up to 31 July 1999 is capital expenditure.
  2. Licence fee payable after 1 August 1999 under revenue-sharing arrangement is revenue expenditure.
  3. Capital expenditure would qualify for deduction under Section 35ABB.
  4. Interest on delayed payment would take the character of the underlying licence fee.

The Court clarified that:

  • If the interest relates to licence fee for the period prior to 31 July 1999, it must be capitalised.
  • If the interest relates to licence fee for the period after 31 July 1999, it will be revenue expenditure.

Since the factual matrix was not clear on record, the matter was remanded back to the Assessing Officer for fresh adjudication.

The question of law was decided in favour of the Revenue and against the assessee. The appeals were partly allowed.

Important Clarification

This judgment reinforces that the nature of interest on delayed payment follows the nature of the principal liability.

The Court clearly distinguished between the pre-31 July 1999 fixed licence fee regime and the post-1 August 1999 revenue-sharing regime, which is crucial for telecom tax litigation.

Sections Involved

  • Section 35ABB – Expenditure for acquiring telecom licence
  • Section 37(1) – Business expenditure (general deduction principle)
  • Income Tax Act, 1961

Link to Download the Order https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:2746-DB/RKG23032015ITA7992014.pdf

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