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2015 (12) TMI 1505 - ITAT DELHI

2015 (12) TMI 1505 - ITAT DELHI - TMI - Deduction u/s 35ABB (2) - Held that:- In view of prohibition to transfer the original license, we reject the claim of the assessee for deduction of the whole sum paid under Phase-I of the license u/s 35ABB (2) of the Act and confirm the order of CIT(A) on this count.

Deduction u/s 35ABB (1) - Held that:- Assessee has exercised option to migrate to Phase-II and not to continue under phase-I policy. As per chart submitted by the assessee showing d .....

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e in phase-I has ceased or not in force. Therefore we are unable to persuade ourselves that the terms of licence granted in Phase-I has come to an end. In our view terms and conditions of license has been modified in above manner and tenure of the same is also extended and license granted in Phase-II is not independent of license granted to assessee in Phase-I. Therefore the claim of the assessee for deduction of above sum u/s 35ABB (1) is also not correct.

Whether the amount of unall .....

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In view of this we confirm the order of CIT(A) in granting deduction of ? 1,26,58,244/- being 1/10th of ? 12,65,82,440/- being fees paid by assessee in Phase-I as deductible expenditure u/s 35ABB(1) during the year under consideration i.e. A.Y. 2006-07 - Decided against assessee.

Depreciation u/s 32(i) (ii) on the amount of license fees - Held that:- We are of the view that provision of section 35ABB(8) which provides that Where a deduction for any previous year under sub-section (1) .....

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Interest income - assessed as business income OR income from other sources - Held that:- Before CIT(A) the details of such interest income was not furnished by AR of the assessee and same was no such details have been furnished before us. In the assessment order also, AO has not mentioned the reason for changing the head of bank interest income from "Business Income "offered by assessee to 'income from other sources'. Therefore in the interest of justice we set aside this ground of appeal of th .....

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per assessment order for AY 2004-05. Against this CIT(A) has granted a direction to AO verify the record and allow carry forward of unabsorbed business loss and depreciation in accordance with the law. We do not find any infirmity in the order of CIT (A) - Decided against revenue - ITA No. 1316/Del/2011, ITA No.1720/Del/2011, ITA No.1317/Del/2011, ITA No.1721/Del/2011, ITA No.5081/Del/2011, ITA No.4364/Del/2011 - Dated:- 24-11-2015 - I. C. Sudhir, JM And Prashant Maharishi, AM For the Appellant .....

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dcasting limited ITA No 1316/Del/2011 by Assessee and ITA No 1720/Del/2011 by revenue ₹ 12,65,82,440/- 2 Digital Radio (Mumbai) Broadcasting limited ITA No 5081/Del/2011 by Assessee and ITA No 4364/Del/2011 by revenue ₹ 26,37,65,421/- 3 Digital Radio (Kolkata) Broadcasting limited ITA No 1317/Del/2011 by Assessee and ITA No 1721/Del/2011 by revenue ₹ 1,77,65,995/- 2. As the facts and the circumstances of all these six appeals are identical except the amount involved, we dispose .....

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ssfully participating in the auction held in March, 2000 it entered in to a licences agreement dated 27/10/2000 with Ministry of Information and Broadcasting. Tenure of that license was for a period of 10 years. License fee was fixed for the first year at ₹ 7,12,50,000 and subsequently there is an escalation clause of 15 % every year during the term of license. Such licenses were made operational from 29/04/2003,i.e. AY 2004-05. As the F M radio industry was suffering from high amount of f .....

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not entitled to participate in these fresh bids but they were given an option as under :- a. Migrate to Phase-II policy regime with fresh term of 10 years provided they had operationalised their FM channels and paid off all license fees dues of Phase -I license up to the cut-off date of 1st April 2005 and were not in default of any other license conditions till the date of migration to phase-II. b. Continue to remain under Phase-I policy regime c. Surrender their FM channel under Phase-I license .....

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id in that city and all the bids below the reserve limits were rejected summarily. The One time entry fee is the charge / fee for the new successful bidder for a period of 10 years with effect from 1.4.2005. Over and above OTEF each successful bidder is also required to pay an annual license fees on revenue sharing basis @ 4 % of gross revenue for the year or 10 % of the OTEF for the concerned city, whichever is higher. On exercise of option given to the exiting broadcasters to migrate to phase- .....

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cense fee expenditure:- I. For phase -I ₹ 12,65,82,440/- a. Assessee paid ₹ 7,12,50,000/- as license fee for phase-I up to Ay 2003-04 out of which ₹ 71,25,000/- was claimed as deduction for AY 2004-05 and 2005-06. Therefore total deduction allowed to them out of ₹ 7,12,50,000/- is of ₹ 1,42,50,000/-. Balance amount of ₹ 5,70,00,000/- was claimed as deduction in A.Y. 2006-07. b. Assessee further paid ₹ 5,46,25,000/- in AY 2005-06, out of which sum of S .....

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diture incurred by the assessee. 7. There is no dispute about the claim of deduction of assessee of ₹ 3,00,80,222/- paid under phase-II of the licensing terms and same was allowed to the assessee as deduction by AO. However, claim of deduction as listed above pertaining to Phase-I of ₹ 12,65,82,440/- was disallowed by the AO holding that same is a capital loss as the license was not transferred as required u/s 35ABB (2) of the act. 8. Aggrieved by order of AO, assessee preferred appe .....

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fee of phase-II, hence he granted deduction of ₹ 1,26,58,244/- being 1/10th of ₹ 12,65,82,440/-. 9. Being aggrieved with the order of CIT (A), Assessee has preferred this appeal raising the following grounds :- 1. That on the facts and in the circumstance of the case, the authorities below had erred on facts and under the law in disallowing deduction of ₹ 11,39,24,196/- out of ₹ 12,65,82,440/- towards the license fee as claimed by the appellant during the year under consi .....

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s starting from assessment year 2006-07 thereby allowing deduction of ₹ 1,26,58,244/- only. 2. That without prejudice to ground no 1 above, the authorities below ought to have allowed depreciation on the entire amount of ₹ 12,65,82,440/- @ 25 % per annum. 3. The interest income as declared at ₹ 38,41,383/- ought to have been assessed as business income and not under the head " income from other sources" 10. Revenue being aggrieved with the order of CIT (A) has risen f .....

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linked to the issue of allowability of license fee paid under phase-I. 12. Before us LD AR of the assessee submitted as under :- (i) That such license fee expenditure of ₹ 26,37,65,421/- as paid under Phase-I license regime is allowable in full during the year under consideration in accordance with sub-section (2) of section 35ABB, For this he relied on the provision of section 35ABB(2) and also the notification issued by the Govt, of India Notification No. 39 dated 9th January, 2004,wher .....

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d 'transfer' is not defined in section 35ABB and accordingly, he submitted that it should be looked elsewhere in the Income Tax Act. For this he relied on the definition of "transfer" u/s 2 (47) of and for definition of capital assets u/s 2 (14) of the Act. Further he submitted that Section 35ABB specifically deals with expenditure for obtaining license to operate telecommunication services and accordingly, the license as obtained by the Assessee for operating FM radio station .....

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pital asset i.e. fixed fee Phase-I license as issued vide agreement dated 27/10/2000 inexchangefor a new license called Grant of permission Agreement (GOPA) dated 02/03/2007 under Phase-II which was made effective w.e.f. 01/04/2005. According to him such relinquishment/ extinguishment/exchange/ parting of asset or rights therein in capital asset in any manner whatsoever clearly amounted to "transfer" as per the definition of transfer u/s 2(47) read with Explanation 2. For this proposit .....

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le to section 35ABB, then he pressed to look at the ordinary/common meaning of the word 'migrate' and 'transfer'. As per the dictionary meaning of these words both these words are synonyms. Hence, from this angle also, migration of license from Phase-I regime to Phase-II license regime is to be considered as transfer of license and therefore, the Assessee' s case is covered under sub-section (2) of section 35ABB. (iii) If Assessee had opted to surrender its Phase-I license in .....

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situation and therefore, the entire remaining unallowed license fee expenditure pertaining to Phase-I licence deserves to be allowed during the year under consideration itself and not over the next 10 years period which is applicable to the new Phase-II licence. (iv) Without prejudice to the above, if it is held that it is not a case of 'transfer' of license because the Phase-I license had come to an end when the Assessee opted to migrate to Phase-II license, in that situation also licen .....

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s allowability as per the Dept, and the amount remaining unallowed during the year. (v) In Assessee' s case, it is a fact that Phase-1 license remained in force or was valid till 1st April, 2005 which was the cut-off date for migration to Phase-II license as is evident from first two paras of Govt, of India's letter dated 21/12/2005 placed at pages 53 - 55 of the paper book. Further, Phase-II license dated 2nd March, 2007 as per copy placed at pages 61-76 of the paper book was completely .....

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e till cut-off date of 1st April, 2005 and then further pay a One Time Entry Fee (OTEF) equal to average of all successful bids received from new bidders under Phase-II for the city of Mumbai. This clearly demonstrates that Phase-I license remained in force or was valid till 1st April, 2005 only. The AO had also recorded this finding of fact at page 7of his order by observing as under: "Rather; as a result of assessee migrating to Phase-II regime, the earlier licence agreement has come to a .....

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r Phase -II license regime. (vi) In view of the above, the entire remaining unallowed licence fee expenditure of ₹ 26,37,65,421/- under Phase-I licence as actually paid deserves to be allowed in full during the year under consideration as per sub-section (1) of section 35ABB since the term of such license had come to an end on 1st April, 2005. (vii) Section 35ABB was explained vide Departmental Circular 763 dated 18th February, '1998 placed at page 80of the paper book according to whic .....

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g unallowed as reduced by the proceeds of transfer is to be allowed as expenditure in the previous year in which the license has been transferred. Such Departmental Circular is binding and deserves to be followed. In this connection, reliance is placed on various judgments as cited before CIT (A) also cited before us which are mentioned at pages 6 & 7 of the paper book. Therefore in nutshell his argument was that the claim of license fee paid remaining unallowed is allowable u/s 35ABB (2) as .....

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/s 35ABB (2) fails. He relied on the definition of 'property' as per legal dictionary. b. He further submitted that migration of assessee license from phase -I to phase II is not a transfer as envisaged u/s 2 (47) of the Income Tax act and even otherwise definition of transfer provided u/s 2 (47) of the Income tax act cannot be imported u/s 35ABB (2) of the act. Further he submitted that for transfer there has to be two person i.e. one transferor and another transferee and in this case t .....

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remaining unallowed in the hands of the assessee paid for license under Phase-I on migration. AO has disallowed the same holding that it is a capital loss and there is not transfer as envisaged u/s 35ABB (2) of the act. CIT (A) has upheld both the contention of AO however he has increased the amount of license fees paid under phase-II with the amount remaining unallowed in the hands of assessee for fees paid for Phase-I and granted the deduction on such amount over the new term of ten years of .....

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, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure. (2) Explanation.-For the purposes of this section,- 71[(i) "relevant previous years" means,- (A) in a case where the licence fee is actually paid before the commencement of the business to operate telecommunication services, the previous years beginning with the previous year .....

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l payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee. (2) Where the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) are less than the expenditure incurred remaining unallowed, a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of the transfer, shall be allowed in respect of the pr .....

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ious year in which the licence has been transferred. Explanation.-where the licence is transferred in a previous year in which the business is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year. (4) Where the whole or any part of the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) are not less than the amount of expenditure incurred remaining unallowed, no deduction for s .....

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re remaining unallowed; and (b) dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the licence is transferred. (6) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers the licence to the amalgamated company (being an Indian company),- (i) the provisions of sub-sections (2), (3) and (4) shall not apply in the case of the amalgamating company; and (ii) the provisions of this .....

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to the resulting company as they would have applied to the demerged company if the latter had not transferred the licence.] 73[(8) Where a deduction for any previous year under sub-section (1) is claimed and allowed in respect of any expenditure referred to in that sub-section, no deduction shall be allowed under sub-section (1) of section 32 for the same previous year or any subsequent previous year.] 16. On reading of above provision as enumerated the following proposition emerges. a) Accordin .....

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on starts from the year of commencement of the business. Such expenditure is allowed for the remaining time for which the license remains effective. b) According to sub section (2) if whole of license is transferred where proceeds are less than the expenditure remaining unallowed, expenditure remaining unallowed as reduced by the amount of sale proceeds is allowed as a deduction in the year of transfer. Where proceeds are more than the expenditure remaining unallowed amount of sale proceeds or a .....

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d, In this case the deduction allowed under this section for remaining period will be calculated as expenditure remaining unallowed less sale proceeds)/No. of years remaining for effectiveness of license. Where proceeds are more than the expenditure remaining unallowed Amount of sale proceeds or amount of expenditure incurred to obtaining license (whichever is less) as reduced by the expenditure remaining unallowed shall be taxable as business profits in the year of transfer, whether business ex .....

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License fee paid under phase-I is governed by the provision of the License agreement entered in to between Government of India and assessee on 27th October 2000. The copy of same is placed at paper book page no 21 to 42. Salient conditions of the agreement are as under :- a) License is granted on non-exclusive basis for the period of 10 years. The licensor reserves the right to increase the numbers of centres and number of channels available at a particular centre in future date without assigni .....

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he claim of the assessee and revenue it is necessary to look in to the Migration policy containing terms and conditions of such migration from phase-I to phase-II As per communication dated 13.07.2005 this policy was announced which contained following salient features of migration. "POLICY ON EXPANSION OF FM RADIO BROADCASTING SERVICES THROUGH PRIVATE AGENCIES (PHASE-II). New Delhi. Dated: 13th July, 2005. The Government of India, Ministry of Information & Broadcasting has formulated a .....

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are given below: 1. Process of granting permission: 1.1 Permission shall be granted on the basis of One-Time Entry Fees (OTEF) quoted by the bidders (Closed Tender System). The Ministry of I&B would separately issue detailed tender notice in due course enabling the interested parties to participate. 2. Eligibility Process: 2.1 The process of granting permission for new participants under Phase 2 shall consist of two rounds. The first round shall be for pre-qualification and only applicants q .....

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eir fulfilling the prescribed eligibility criteria. MIGRATION TO PHASE 2. 1. Licensees of Phase-I, who have actually operationalized their channels would be given the option to migrate to Phase 2 Policy Regime. They will have to exercise their initial option by the prescribed date to automatically migrate to Phase 2 Policy regimes in accordance with the terms and conditions of migration or continue under Phase 1 or surrender their licenses with one month's notice. 2. In the event of surrende .....

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ions till the date of migration to Phase 2. 4. The cut-off date for automatic migration to Phase 2 shall be taken as April 1, 2005. All payments made by operationalised license holders of Phase 1 in excess of amounts due till the cut-off date, shall be given credit and adjusted against their One-time Entry Fee (OTEF) for Phase 2. 5. Each operationalised license holder of Phase 1, who is eligible for automatic migration, shall pay OTEF amount equal to the average of all successful bids received u .....

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alised license holder of Phase 1 shall be issued a fresh permission with the same terms and conditions as for successful bidders of Phase 2. 7. If any of the operationalised license holders of Phase 1, who is eligible and opting for automatic migration to Phase 2, fails to deposit the OTEF or sign the Grant of Permission Agreement within prescribed period, its automatic migration to Phase 2 shall stand cancelled and it shall be governed by the terms and conditions of its original license under P .....

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he Ministry of Information & Broadcasting may cancel its license and permit it to close down the station, and may allocate the frequency so released to the next highest eligible bidder under Phase 2." 19. Now first we examine claim of assessee u/s 35ABB (2) of the Income tax act. According to that section if a. Whole of license is transferred where proceeds are less than the expenditure remaining unallowed, expenditure remaining unallowed as reduced by the amount of sale proceeds is all .....

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Section 45. 20. Therefore according to us, this section postulates following necessary ingredient: a. There should be a transfer of the License already granted. b. There should be proceeds of the transfer 21. Before coming to the first condition of section 35ABB(2), we hold that license is a capital asset in view of the decision of Honourable Delhi high court in CIT V Bharti Hexacom Limited ITA no 1336 of 2010 dated 19/12/2013 where in it is held that license is a capital asset. Now we come to t .....

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or indirectly assign or transfer its rights in any manner whatsoever under this agreement to any other party or enter in to any agreement for sub license and/ or partnership relating to any subject matter of the license to any third party either in whole or in part. Any violation of the terms shall be construed as breach of the License Agreement and License of the Licensee shall be terminated immediately. …… 22. Plea of the assessee that as the License is capital asset and same is .....

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by assessee to migrate to phase-II. As the assessee is precluded from transferring the license as well as the transfer of any right contained in the license, according to us, there is no transfer of license. According to letter dated 21 December 2005 issued by GOI also mentioned clearly in para no 2 that license of operationalised channels shall be considered to migration in phase-II provided they have paid all their dues from due dates up to cut off date and are not in default of any other lice .....

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-II, there is no substantial change in the terms and conditions except that License fee payments has changed from 'Fixed fee basis' to 'revenue sharing basis' and duration of payment. Further On exercising its option to automatically migrate to Phase 2, and payment of the OTEF within the prescribed period, each eligible operationalised license holder of Phase 1 shall be issued a fresh permission with the same terms and conditions as for successful bidders of Phase-II. Therefore a .....

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. We are also not persuaded to the argument of AR of the assessee meaning of words 'Migrate' and transfer' should be perused in ordinary sense and they are synonymous because of the reason that agreement itself prevents assessee from transferring license or any rights there in and set of policies of government are allowing it to migrate to different methodology of payment of fees to government. 23. Before us also Assessee has relied up on several judgments of various courts as under: .....

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tion for such transfer. In none of the cases it was the facts that the assets was non-transferrable as in the case of the assessee. Therefore the reliance placed up on them is unjustified. 24. Hence in view of prohibition to transfer the original license, we reject the claim of the assessee for deduction of the whole sum of ₹ 12,65,82,440/- paid under Phase-I of the license u/s 35ABB (2) of the Act and confirm the order of CIT(A) on this count. 25. Now we proceed to examine claim of the as .....

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s incurred before the commencement of business, then deduction starts from the year of commencement of the business. f. Such expenditure is allowed for the remaining time for which the license remains in force. 26. According to the migration policy the new license shall commence with effect from 1-4.2005 with following three options:- a. Migrate to Phase-II policy regime with fresh term of 10 years provided they had operationalised their FM channels and paid off all license fees dues of Phase-I .....

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rms which has become from fixed payment regime to revenue sharing regime, in the conditions pertaining to shareholding, conditions for appointment of directors, hiring of broadcasting equipment's etc. As we have already held that migration of license of assessee from phase-I to phase-II is just modification of terms and conditions of the license and these modification cannot be said that old license granted to assessee in phase-I has ceased or not in force. Therefore we are unable to persuad .....

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policy is a capital loss or whether such a sum is allowable to the assessee. According to us as the amount paid by the assessee in phase-I by virtue of which it has got right for automatic migration to PHASE-II is not capital loss incurred by the assessee but assessee is eligible for deduction of the same u/s 35ABB (1) over the remaining life of license modified by PHASE-II policies. Before CIT(A) also assessee submitted that the unallowed expenditure paid under phase-I shall be deserves to be .....

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ellant was entitled to claim license fee expenditure as actually paid under Phase-I license regime on proportionate basis over the 10 year license fee term commencing from A.Y. 2004-05 as per section 35ABB of I.T. Act, as allowed by the AO vide assessment order for 2004-05. The issue for consideration therefore is the allowability of the remaining license fee expenditure of ₹ 12,65,82,440/- as paid during the A.Ys. 2004-05 and 2005-06 under Phase-I license regime. The appellant has claimed .....

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ify the appellant's claim for allowing the remaining entire license fee expenditure of ₹ 12,65,82,440/- under Phase-I license regime during A.Y 2006-07 itself. In this case, I find that while migrating from Phase-I license regime to Phase-II license regime, there was no transfer of license from the appellant to any other party. The case laws as cited by the ld. AR vide its submissions dated 18.11.2010 are distinguishable on facts as such cases deal with definition of 'transfer' .....

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ellant's claim for deduction of the entire remaining license fee expenditure of ₹ 12,65,82,440/- during this year is rejected. 5.8 However, from the Govt. Policy document dated 13.07.2005 as pointed by the ld. AR, it is found that the FM licensees in Metro cities were eligible to opt for migration to Phase-II license only if they had paid all their license fee dues under Phase-I license regime as were applicable till the cut-off date of 01.04.2005. In this connection, relevant portion .....

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icense conditions till the date of migration to Phase 2. The cut-off date for automatic migration to Phase 2 shall be taken as April 1, 2005. All payments made by operationalised license holders of Phase 1 in excess of amounts due till the cut-off-date, shall be given credit and adjusted against their One Time Entry Fee (OTEF) for Phase 1". Further, copy of letter dated 21.12.05 as issued by the Ministry of Information and Broadcasting to the appellant also clearly vide para 4 specifies the .....

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Terms and Conditions as for the successful Bidders of Phase II". In other words, payment of license fee dues under Phase-I license regime was made a recondition by the Govt, in order to permit the appellant to migrate to Phase-II license regime. 5.9 In view of the above, the remaining expenditure on account of Fixed License Fee as actually incurred by the appellant under Phase-I license regime becomes part and parcel of all the payments as made in order to become eligible for obtaining Pha .....

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CBDT's Circular 763 dated 18.12.1998. 5.10 I find that the above issue is similar to the issue of allowability of license fee on migration from Fixed License Fee regime to Revenue Sharing regime in case of telecom companies as per the policy of the Department of Telecommunication, Govt. Of India. In this regard, in the case of RPG Cellcom Ltd. (presently known as Idea Cellular Ltd.) pertaining to this charge, the assessee was granted a license during FY 1995-96 by the Department of Telecommu .....

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y the Department in all the years. Subsequently the Department of Telecommunications, Govt, of India vide its letter no. 842-47/2000-VAS(Vol. IV) dated 05.10.2000 extended the period of above license from 10 years to 20 years and confirmed migration from Fixed » License Fee regime to Revenue Sharing regime w.e.f. 01.08.1999 in view of the New Telecom Policy-99. Accordingly, the assessee recalculated the amortization of license fee over 20 years and in the return of income from AY 2001-02, .....

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iture u/s 35ABB during the year under consideration i.e. A.Y. 2006-07. This ground of appeal is disposed off accordingly." We have also carefully perused the reason given by CIT(A) for allowing the deduction of fees paid by assessee under PHASE-I over the remaining life of the license granted under PHASE-II of the regime. We do not find any infirmity in the finding as well as reasoning given by CIT(A) as in substances the reason canvassed by CIT(A) are similar to what we have propounded in .....

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the license fee expenditure of ₹ 26,37,65,421/- is not considered to be allowable in full during the year under consideration as per section 35ABB, then alternative submission as also taken up before CIT(A) deserves to be considered according to which section 32(i)(ii) of I.T. Act recognizes licenses as an intangible asset on which depreciation is to be allowed as prescribed under the Income-tax Rules which prescribes the rate of 25% as per Rule 5 of Appendix I (Part B). 29. We have carefu .....

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wherein we have allowed the claim of the assessee on proportionate basis from remaining years of license, the claim of the assessee cannot be accepted. Hence we reject ground no. 2 of the appeal of assessee. 30. Ground No 3 of the appeal of assessee is against interest income as declared at ₹ 38,41,383/- ought to have been assessed as business income and not under the head "income from other sources. Before us LD AR submitted that part of the income of the interest is earned because .....

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details have been furnished before us. In the assessment order also, AO has not mentioned the reason for changing the head of bank interest income from "Business Income "offered by assessee to 'income from other sources'. Therefore in the interest of justice we set aside this ground of appeal of the assessee back to the file of AO to decide the same on merit after affording reasonable opportunity of hearing to assessee. Therefore ground no 3 of the appeal of the assessee is all .....

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