The variable license fee under the New Telecom Policy is capital expenditure, amortizable, as it secures the right to operate telecom services.

JUDGMENT :

(B.V. Nagarathna, J.)

Delay condoned.

2. Leave granted.

3. The judgment of the Division Bench of the High Court of Delhi, dated 19 December, 2013 in ITA No. 1336 of 2010 and connected matters, whereby the High Court of Delhi, confirming the decision of the Income Tax Appellate Tribunal, New Delhi (hereinafter, “Tribunal” for short) has held that the variable licence fee paid by the respondents-assessees under the New Telecom Policy, 1999 ((hereinafter referred to as “Policy of 1999” for the sake of convenience), is revenue expenditure in nature and is to be deducted under Section 3 7 of the INCOME TAX ACT , 1961 (hereinafter referred to as “the Act” for the sake of brevity) is assailed in these appeals. Some of these appeals also arise from judgments passed by the High Courts of Bombay and Karnataka, following the judgment of the Division Bench of the High Court of Delhi, dated 19 December, 2013.

4. Since common questions of law and facts arise in these appeals, they have been clubbed together and heard and disposed of by this common judgment.

Bird’s eye view of the controversy:

5. The controversy in these cases revolves around the question, as to, whether, the variable licence fee paid by the respondent-assessees to the Department of Telecommunications (hereinafter referred to as “DoT”, for short) under the New Telecom Policy of 1999 (Policy of 1999) is revenue expenditure in nature and is to be allowed deduction under Section 37 of the Act, or, whether the same is capital in nature, Section 35ABB of the Act.

Brief facts of the case:

6. The National Telecom Policy of 1994 was substituted by the New Telecom Policy of 1999 dated 22 July, 1999. The said Policy of 1999 stipulated that the licencee would be required to pay a one-time entry fee and additionally, a licence fee on a percentage share of gross revenue. The entry fee chargeable would be the fee payable by the existing operator upto 31 July, 1999, calculated upto the said date and adjusted upon notional extension of the effective date. Subsequently, w.e.f. 01 August, 1999, licence fee was payable on a percentage of Annual Gross Revenue (“AGR”, for short) earned. The quantum of revenue share to be charged as licence fee was to be finally decided after obtaining recommendation of the Telecom Regulatory Authority of India (“TRAI”) but in the meanwhile, the Government of India fixed 15% of the gross revenue of the licencee as provisional licence fee. On receipt of TRAI’s recommendation by the Government, adjustment of the dues was to be made.

6.1. Clause 7 of the Policy of 1999 stipulated that upon migration thereto, the licencees would forego the right of operating in a regime of limited number of operators as per the existing licensing agreement and would operate in a multiple licence regime, that is, additional licences without any limit could be issued in a given service area. The period of licence was stated to be twenty years from the effective date of the existing licence agreement, that is, the 1994 Agreement. Migration to the Policy of 1999 was on the condition and premise that the conditions should be accepted as a package in entirety and simultaneously and all legal proceedings shall be withdrawn and no dispute relating to the period upto 31 July, 1999 shall be raised at any future date. If all the terms were accepted, amendments to the existing licence agreement