2022 (5) TMI 1554 - AT - Income Tax

Nature of expenses - License Fee - Revenue or capital expenditure - assessee company has paid an amount to the Government of India Department of Telecommunication in consideration for grant of license to operate and provide the services - HELD THAT - The issue has been consistently held as revenue expenditure by the ld. CITs(A) in earlier assessment years starting from 2006-07 to 2014-15. Further this disallowance has been deleted by the Co-ordinate Bench of ITAT in the assessee s case for A.Y. 2007-08 2015 (1) TMI 924 - ITAT DELHI wherein the ITAT held that license fee paid under the new revenue sharing regime effective from 01.08.1999 under the New Telecom Policy would be allowed as revenue expenditure. Since the decision of the ld. CIT(A) is based on the order of the Tribunal we hereby decline to interfere with the order of the ld. CIT(A) on this issue. Decided against revenue. TDS Credit on deferred revenue - AO disallowed TDS on deferred revenue by holding that if corresponding income is not taxable in a particular year then corresponding credit for tax deducted may not be granted in view of section 199 in that year - AO held that merely because credit was claimed for tax deducted at source it does not mean that the corresponding income is chargeable to tax - HELD THAT - We find that this issue has been considered in assessee s own for the A.Y. 2014-15 2021 (8) TMI 1216 - ITAT DELHI directing the revenue to allow the proportionate credit of TDS for the income declared during the year under consideration.

Summary

Issues:
1. Treatment of license fee as revenue or capital expenditure.
2. Allowability of TDS credit on deferred revenue.

Issue 1: Treatment of license fee as revenue or capital expenditure:

The appeal involved a dispute over the treatment of license fee paid by the assessee to the Department of Telecommunication (DOT). The Revenue contended that the license fee should be considered as capital expenditure, while the assessee argued that it was revenue expenditure. The Revenue claimed that the license fee was for acquiring the right to operate telecommunication services and should be amortized under section 35-ABB of the Income Tax Act. However, the ITAT upheld the decision of the CIT(A) based on previous tribunal orders, stating that under the new revenue sharing regime, the license fee should be treated as revenue expenditure. The ITAT referred to a previous decision where it was held that the license fee under the new regime was allowable as revenue expenditure. Consequently, the appeal of the Revenue was dismissed.

Issue 2: Allowability of TDS credit on deferred revenue:

The second issue revolved around the disallowance of TDS credit on deferred revenue claimed by the assessee. The Assessing Officer (AO) disallowed the TDS credit, arguing that if the corresponding income was not taxable in a particular year, then the credit for tax deducted should not be granted in that year. The assessee, however, contended that it followed a percentage completion method for revenue recognition and recognized revenue over the tenure of contracts. The assessee claimed TDS credit for tax deducted by customers in previous years relevant to the current assessment year, even if the related revenue was booked in subsequent years. The assessee argued that this was a timing difference and cited precedents where TDS credit was allowed irrespective of the year to which it related. The ITAT held that credit for TDS should be given continuously for assessment years, especially when income was recognized simultaneously with project execution progress. The ITAT referred to previous decisions directing the revenue to allow proportionate TDS credit for income declared during the relevant year. Consequently, the appeal of the assessee on this ground was allowed for statistical purposes.

In conclusion, the ITAT Delhi ruled on two main issues regarding the treatment of license fee and the allowability of TDS credit on deferred revenue. The judgments provided clarity on these matters based on the arguments presented by the parties and relevant legal provisions.