In a significant ruling in the case of Vodafone Idea ltd, the Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the Revenue sharing license fee paid fixedly to the department of telecommunication is allowable as a deduction.
The assessee challenged the disallowance of Revenue sharing license fees amounting to Rs.415,08,45,362/-. The AO observed that the assessee had debited a license fee amounting to Rs.4150.84 million in its profit and loss account. The AO observed that the assessee was claiming depreciation on the license fee and deduction u/s.35ABB of the Income Tax Act,1961. This payment is made by the assessee to Government authorities to carry on the business of telecom service provider.
The AO observed that the assessee had claimed license fees as a deduction u/s.35ABB of the Income Tax Act by amortising the expenditure over the period of license and viewed that the assessee had to pay license fees on revenue sharing basis from A.Y.2000-01 onwards. This amount of Revenue sharing license fee was initially capitalised and depreciation was claimed on the same. Subsequently, the assessee started claiming this expenditure u/s.37(1) of the Act as a deduction.
It was observed that for the same category of expenditure, the assessee is claiming deduction u/s.35ABB of the Act on an amortisation basis and also deduction u/s.37(1) of the Act thereby leading to double deduction and AO disallowed the claim of Rs.415.08 Crores in addition to disallowing the claim of depreciation u/s.32 of the Act amounting to Rs.4,99,08,190/-. The CIT(A) partly allowed the claim of the assessee by allowing depreciation on the revenue-sharing license fee paid.
The ITAT bench consisting of Shri Vikas Awasthy, judicial member & Shri M Balaganesh, accountant member observed that the revenue sharing license fee is a fixed fee payable by the assessee to the department of telecommunications, Government of India.
It was observed that the assessee had claimed this deduction on a hybrid model, because, for one circle which was taken over by the assessee from another company, that company was claiming a deduction on an amortisation basis u/s.35ABB of the Act. This was continued by the assessee even after the takeover of the said company in respect of that one circle alone. In respect of other circles operated by the assessee, the assessee had been consistentlyclaiming deduction as revenue expenditure u/s.37(1) of the Act.
The CESTAT bench remanded the issue to the file of the AO for the limited purpose of verification of the fact as to whether the assessee has claimed a double deduction in respect of this expenditure for the same circle where the assessee is operating its telecom services.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
