The Supreme Court ruled that license fees under the Telecom Policy are capital expenditures and must be amortized, rejecting any apportionment between capital and revenue.

ORDER

PER MAHAVIR SINGH, VP:

This appeal by the revenue is arising out of the order of CIT(A), Delhi in Appeal No.CIT(A), Delhi-36/10064/2018-19 vide order dated 31.07.2020. The assessment was framed by DCIT, Circle- 11(2), New Delhi for the A.Y.2012-13 u/s. 143(3) of IT Act, 1961 (herein after referred as “the Act”) vide his order dated 25.03.2015.

2. The only issue in this appeal of revenue is as regard to the order of the CIT(A) deletion the addition made by the AO by holding the license fee as capital in nature. For this revenue has raised following ground No.1:-

“1. Whether on the facts and in the circumstances of the case the CIT(A) erred in deleting the addition of Rs.11,99,37,347/- made by the AA on account of capitalization of license fee.”

3. We have heard the rival contentions and gone through the facts and circumstances of the case. The brief facts of the case are that the assessee company is engaged in the business of inter alia, marketing of Very small Apparatus terminals (VSATs) and providing satellite communication services through its HUB earth station at Gurgaon. The assessee also provides broadband, internet, other tele-communication services, high end education programmes imparted by premium institute in India and overseas.

4. During the assessment proceedings, the AO noted that assessee has claimed license fee expenses amounting to Rs.159,916,462/- in lieu of rights to use telecommunication spectrum license. The assessee claimed the same as revenue expenditure. The AO after considering the submissions of the assessee noted that the assessee itself admitted the payment of this license was in nature of royalty and according to him which is payment in the nature of capital because it give enduring benefits and it is in lieu of long term benefits obtained by the assessee. The AO observed as under:-

“The fact remains that the aforesaid license has given the assessee a long term right to use the telecommunication spectrum and thus, the expenditure amounting to Rs.159,916,462/- is in the nature of capital expenditure which would bring enduring benefit to the assessee. Thus, this amount of Rs.159,916,42/- is hereby capitalized. However, depreciation @ 25% amounting to Rs. 39,979115/- is allowed to the assessee and the remaining amount of Rs.119,937,347/- (Rs.159,916,462-Rs.39,979,115) is hereby disallowed and added back to the income of the assessee.”

Aggrieved, revenue preferred appeal before CIT(A).

5. The CIT(A) after going through the submissions of the assessee and noting that the similar additions were made in A.Ys. 2011-12, 2013-14 and 2015-16 and the same were deleted by his predecessor’s orders and the facts is noted by CIT(A) in paras 6.3.1.and 6.3.2 as under:-

“6.3.1 In its submissions dated 11.04.2019, the AR of the appellant has submitted that:-

“It may be pointed out that during the assessment year 2011- 12 and 2013-14 similar addition was made by the assessing officer in the appellant’s own case.

Your Honor’s predecessor has vide order dated 12.06.2017 and 20.10.2017 respectively deleted the disallowance of license fee made by the assessing officer.

The AR of the appellant has also filed copies of the appellate orders for A.Y. 2011-12 & 2013-14, which have been considered and are placed on record.

6.3.2. It is seen from the submissions of the appellant that Ld. CIT(A)-39, Delhi, in its appellate order dated 12.06.2017 & Ld. CITA-22, Delhi in its appellate order dated 20.10.2017, have allowed the appeals of the appellant on similar issue. Therefore, maintaining judicial discipline and respectfully following the decisions of Ld. CIT(A)-39, Delhi, & Ld. CIT(A)-22, the appeal on this ground is allowed.”

Accordingly, the CIT(A) taking a consistent view and relying on earlier years held that the expenditure claimed by the assessee is revenue in nature. Aggrieved, revenue preferred appeal before Tribunal.

6. After hear