TMI Blog2012 (8) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is paying license fee annually, whereas in the case of Bharti Infotel Ltd. (2015 (1) TMI 1259 - ITAT DELHI ) license fees was paid in the first year itself for 15 years. These cases are applicable directly on the issue. Therefore, in view of the above observations of ours and in view of these decisions, we hold that the expenditure on account of license fee paid by assessee is revenue in nature and is allowable u/s 37(1) of the Act. Accordingly, we direct the Assessing Officer to allow the expenditure as claimed by the assessee. Disallowance towards notional interest on investments in an advances made to subsidiary company - Held that:- As stated above, the assessee has its own funds, therefore, the entire addition is liable to be deleted. Even otherwise, the amount has been advanced to its sister concern/ subsidiary, which are doing business and it has been clearly stated that the same has been advanced for commercial expediency, no disallowance is to be made. Treatment to interest income - business income OR income from other sources - Held that:- We are of the view that the matter should be examined afresh by the Assessing Officer by examining the factual aspect th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to allow depreciation on this amount being the same on capital account for purchase of machinery/ hand set. We order accordingly. 6. Ground no. 2.1, 2.2 2.3 were not pressed for the reason that the initial payment of three years paid for obtaining license is enduring in nature, therefore, deduction u/s 35ABB was allowable which have already been allowed by the Assessing Officer . However, it was submitted that after three years there is a change in the facts, therefore, this issue will be treated as alive for subsequent years. For these reasons, these grounds were not pressed, therefore, they are dismissed as not pressed. 7. Remaining ground no. 3 is against sustenance of disallowance made by the Assessing Officer on account of contribution to superannuation fund of ₹ 5,06,416/- due to delay of 32 days in depositing. This issue is covered by the decision of Hon ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC), wherein it is held that if the contribution has been paid before filing the return, then the same is allowable. Since the issue is covered by the decision of Hon ble Supreme Court, therefore, we direct the Assessing Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure which determines the character of the expenditure. The assessee had acquired a right to carry on the business on a long term basis hence the additional license fee debited by the assessee to P L A/c was disallowed and appropriate deduction was allowed u/s 35ABB of the Act. 11. The contentions raised before Assessing Officer were reiterated by learned A.R before CIT(A). Reliance was placed on the decision of Hon ble Supreme Court in the case of Travancore Sugar Chemicals Vs. CIT 62 ITR 566 wherein it was held that license fee paid was a function of the profits of the business and had no relation to the value of capital asset. Further reliance was placed on the decision of the tribunal in the case of MTNL decided in ITA nos. 1088 and 1618/Del/2000 wherein it has been held that license fee is allowable as business expenditure. However, ld. CIT(A) was also not satisfied with the explanation of the assessee. The CIT(A) by observing that different fee structures have been prescribed for the four metropolitan cities, it is obvious from the terms and conditions laid down in the agreement that the govt. wanted revenue to increase from year to year and thus allowed only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have gone through various clauses of the agreement and found that assessee is liable to pay a certain license fee on the basis of 100 subscribers or part thereof. Initial fees is to be computed @ ₹ 5 lacs per 100 subscribers and thereafter a formula has been given. This license fees has been paid annually as per clauses of agreement from the fourth year as for first three years a fixed license fee has to be paid by the assessee just to establish itself. On first three years subscription, paid by assessee, the assessee has not agitated much that whether they are revenue in nature or capital in nature as he was satisfied with the deduction u/s 35ABB. However, from the fourth year the structure of license fee is totally different which is to be paid on the basis of strength of subscribers. In our considered view, the license fee, paid yearly, cannot be said to be enduring in nature for the simple reason that if assessee did not pay the license fee in subsequent year, the license is likely to automatically cancelled. It means, what ever the license fee is paid, that is paid for only one year. It is also a matter of fact that the license fee paid or payable is on the basis of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement, license fee is payable for subsequent year also. Therefore, the benefit of license fee paid during the year endures only till the end of the relevant financial year and does not extend to subsequent financial year . By these observations, the Tribunal held that license fee paid by the assessee is allowable as revenue expenditure u/s 37(1) of the Act. 17. Similar view has been expressed in case of MTNL Vs. Addl. CIT (2006) 8 SOT 376 (Del.). In that case the Tribunal by discussing the issue in detail and discussing various case laws of earlier years as well as subsequent year and other decisions of the Tribunal, held that: From perusal of section 8 of that Act, it is now evident that under the circumstances the license is revoked, the assessee shall not be able to carry on its business of telephone services, unless it has paid such a license fee to the Government The irresistible conclusion, therefore, would be that payment of license fee was wholly and exclusively incurred for the purpose of the business carried on by it. The same was, therefore, an allowable deduction under section 37 of the Act. Since this liability stands paid during the year under consideration, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tails, which were required by the Assessing Officer , were filed. Chart of investment/ advances made by company during last so many years was also filed. It was submitted that assessee had paid only ₹ 27 crores and odd as interest, however, Assessing Officer has disallowed ₹ 66 crores and odd. Working of the loan taken from the bank and advanced to the subsidiary company was also filed. Since these details were not filed before Assessing Officer , accordingly, a remand report was sought from the Assessing Officer . Detailed remand report was received from Assessing Officer , which has been discussed by CIT(A). Thereafter, ld. CIT(A) observed that during the appellate proceedings, the A.R. of the assessee was to establish a nexus between the interest free advances and interest free funds received by it. In response thereto the ld. A.R. filed a copy of bank statement, ledger account of Air Cell and details of investments in KFSL vide letter dated 12-3-2004. However, observing that it was not possible to establish the nexus, the ld. CIT(A) confirmed the action of the Assessing Officer. 23. Now here before the Tribunal, the counsel of the assessee invited the attention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 crores 92 lacs and 94 thousand, which is much more than the amount advanced to its subsidiary. Hence, no disallowance is warranted. 25. In support of this contention, reliance is placed on the decision of Hon ble Delhi High Court in the case of CIT Vs. Bharti Televenture Ltd. Reliance Utilities Power Ltd. 331 ITR 502 (Del.) and the decision of Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities Power Ltd. 313 ITR 340 (Bom.). 26. It was further submitted that issue is squarely covered by the decision of the Apex Court in the case of SA Builders Ltd. Vs. CIT 288 ITR 1 (SC) as the amount of investment/ advance is given to its sister concern for the purpose of business only. 27. Alternatively, it was submitted that if any disallowance can be made that can be made in respect of investment made during the year under consideration i.e. ₹ 54.7 crores and not of the entire amount which was advanced in earlier years. In support of this contention, reliance has been placed on the decision of Hon ble Karnataka High Court in the case of CIT Vs. Sridev Enterprises 192 ITR 165. It was also submitted that only during the year under consideration the amount of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of SA Builders Ltd. (supra), in our considered view no disallowance is to be made. Accordingly, we allow this ground of the assessee. 31. Third ground is against not treating the interest income as business income as the Assessing Officer has taken the interest income as income from other sources. This plea was taken before CIT(A) for the first time and CIT(A) has rejected the claim of the assessee. However, we are of the view that the matter should be examined afresh by the Assessing Officer by examining the factual aspect that on which amount the interest has been earned; whether there is direct nexus between earning of interest and expenditure of interest. If there is a direct nexus between earning of interest and expenditure of interest then set off is to be given and if there is an income on account of surplus funds then of course the interest income has to be treated as income from other sources. Since facts are not clear, therefore, we set aside this issue to the file of the Assessing Officer. For the sake of clarification, this observation was made in the open court and both the parties agreed to these observations made by the Bench. We order accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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