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2013 (12) TMI 1115 - HC - Income TaxWhether variable licence fee paid by the assessees was properly deductible as revenue expenditure or or capital expenditure which is required to be amortized under Section 35ABB of the Income Tax Act, 1961 - The licence was issued under a statutory mandate and was required and acquired, before the commencement of operations or business, to establish and also to maintain and operate cellular telephone services. - Held that:- payment of licence fee was capital in part and revenue in part and it would not correct to hold that the whole fee was capital or revenue in entirety. The licencees i.e. the assessees in question required a licence in order to start or commence business as celluar telephone operator. The requirement to procure a licence or pay licence fee was a precondition before the assssee could commence or set up the business in question. The fee was certainly paid to the Government for permitting and allowing an assessee to set up/start cellular telephone service which otherwise was not permitted or prohibited under the Telegraph Act. In a way, it was a privilege granted to the assessee subject to payment and compliance with the terms and conditions. The expenditure incurred for establishing or for setting up/construction of any factory/business would be capital, but the amount paid on yearly basis for running or operation of the factory/business would be normally revenue in nature. - Decided partly in favor of revenue. Power to Court to bifurcate and divide the licence fee into capital and revenue and what percentage or ratio should be attributed to revenue and capital account. - Held that:- The difficulty in apportionment cannot be a ground for rejecting the claim either of the Revenue or of the assessee. Such an apportionment was sanctioned by courts in Wales v. Tilley, Carter v. Wadman (H.M. and T. Sadasivam v. Commissioner of Income-tax, Madras. In the present case apportionment of the compensation has to be made on a reasonable basis between the loss of the agency in the usual course of business and the restrictive covenant. Basis of apportionment - Held that:- t it would appropriate and proper to divide the licence fee into two periods i.e. before and after 31st July, 1999. The licence fee paid or payable for the period upto 31st July, 1999 i.e. the date set out in the 1999 policy should be treated as capital and the balance amount payable on or after the said date should be treated as revenue. Capital expenditure will qualify for deduction as per Section 35ABB of the Act. - Decided partly in favor of revenue.
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