TMI Blog2006 (5) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... lecommunications (hereinafter referred to as DoT) and is in respect of the overdue payment of licence fee. As per cl. 19.1 of the licence agreement dt.11th Jan, 1996between the assessee and the DoT, Government of India, the licence fee payable by the assessee-has to be paid for the first year in lump sum prior to signing of the licence agreement. For subsequent years licence fee for each year shall be payable in quarterly instalments in advance by way of post-dated cheques. In terms of cl. 19.8 of the agreement in the event of overdue payment, interest shall be charged on the amount due at the prime lending rate as specified by the SBI from time-to-time plus 5 per cent (compounded monthly). The interest on licence fee payable as reflected by the assessee as part of the financial expenses was nothing but the interest payable in respect of overdue payment of annual licence fee. The AO made a reference to the provisions of s. 35ABB of the IT Act, 1961 (hereinafter referred to as the Act) and was of the view that since the licence to operate telecommunication service was of the nature of capital expenditure covered by the aforesaid section, the interest payable on overdue licence fee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction. Alternatively, the AO also held that under s. 43B any sum payable by an assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, is allowable as a deduction only on actual payment. He, therefore, held that the sum can be disallowed even by applying the provisions of s. 43B of the Act. The claim of the assessee was thus disallowed by the AO. 6. On appeal by the assessee, the CIT(A) deleted the addition made by the AO holding that the payment in question was revenue expenditure and did not fall within the purview of a licence fee as contemplated under s. 35ABB of the Act. The CIT(A) held that the sum was nothing but a compensation for depriving the use of the funds by the assessee to the Government of India. On the question of applicability of s. 43B of the Act, the CIT(A) held that the payment of interest on overdue licence fee payable arises out of a contractual obligation and not out of any statutory obligation. He, therefore, held that the provisions of s. 43B of the Act are not applicable to the sum in question. 7. Aggrieved by the order of the CIT(A) the Revenue has preferred the aforesaid ground of appeal. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 5 per cent (compounded monthly). A perusal of the aforesaid clauses of the agreement clearly reveals that the liability in question is a contractual liability. It is also clear that the payment of interest is nothing but a compensatory payment for depriving the use of funds by the Government of India. Notwithstanding the fact that the licence fee to operate telecommunication service is a capital expenditure as laid down in s. 35ABB of the Act, the interest payable on overdue payment of the licence fee cannot be said to be capital expenditure, as it does not partake the character of capital expenditure merely because it is incurred in relation to a capital asset. The law is well-settled that interest on borrowings whether for acquiring a capital asset or stock-in-trade is allowable as a deduction. Reference may be made to the decision of the Hon'ble Supreme Court in the case of India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC) wherein the Hon'ble Supreme Court had held that expenditure incurred in raising loans or issuing debentures is allowable as business expenditure on revenue account, irrespective of whether the funds are borrowed for capital outlay or for revenue disbursement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was of revenue in nature. The CIT(A) held that the expenditure in question is not covered under s. 35ABB of the Act. The CIT(A) held that it was a contractual obligation and, therefore, s. 43B of the Act is inapplicable. Aggrieved by the order of the CIT(A) the Revenue has preferred the aforesaid ground of appeal. 13. We have heard the rival submissions. The learned Departmental Representative relied on the order of the AO and the learned counsel for the assessee brought to our attention various terms of the licence agreement and in particular cl. 19.4 of the licence agreement and submitted that the agreement itself clearly specifies that the annual licence fee payable to the Government of India does not include the royalty fee payable to WPC for use of radio frequency. Further reference was made to the decision of the Delhi Bench of the Tribunal in the case of Mahanagar Telephone Nigam Ltd. vs. Addl. CIT (2006) 100 TTJ (Del) 1 for the proposition that annual licence fee payable by cellular telephony operators is a business expenditure and of a revenue nature. Further reference was made to the decision of the Calcutta Bench of the Tribunal in the case of Wellman Incandescent In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure does not partake the character of a capital expenditure and is, therefore, to be allowed as a deduction. In our view the CIT(A) was fully justified in allowing the claim of the assessee for deduction. The order of the CIT(A) is, therefore, upheld and the second ground of appeal of the Revenue is also dismissed. 16. The third ground of appeal of the Revenue reads as follows: "On the facts and circumstances of the case, the learned CIT(A) has erred in: 3. deleting the addition of Rs. 7,96,300 ignoring the decision of the Supreme Court in the cases of PSIDC and Brooke Bond India." 17. The assessee had claimed a sum of Rs. 7,96,300 under s. 350 of the IT Act. The deduction claimed was in respect of payment of fees to the Registrar of Companies (hereinafter referred to as RoC) for increase in share capital of the assessee company. According to the AO the provisions of s. 350 of the Act did not apply to the payment of fees to RoC and he accordingly disallowed the claim of the assessee. The CIT(A), however, deleted the addition made by the AO following the decision of the Hon'ble Rajasthan High Court in the case of CIT vs. Multi Metals Ltd. (1990) 89 CTR (Raj) 240: (1991) 188 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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