C.I.T., DELHI versus BHARTI HEXACOM LTD.

C.I.T., DELHI versus BHARTI HEXACOM LTD.

The variable annual licence fee and the entry/one-time licence fee under the New Telecom Policy, 1999 are payments towards acquisition and continuance of the composite right to establish, maintain and operate telecommunication services; both are capital in nature and amortisable under Section 35ABB of the Income Tax Act, 1961. The Delhi High Court’s apportionment treating post-31 July 1999 payments as revenue was incorrect because the manner or measure of payment does not alter the capital character when payments relate to the same foundational licence obligation.

Parties
Appellant: C.I.T., Delhi; Respondent: Bharti Hexacom Ltd.
Jurisdiction
India
Judgment Date
16 October 2023
Procedural Posture
Civil Appeal / Final Judgment
Outcome
appeals allowed
Legal Topics
Capital Expenditure, Revenue Expenditure, Amortisation, Licence Fee, Royalty
Taxation Income Tax Telecommunications Law Capital Expenditure Revenue Expenditure Amortisation Licence Fee Royalty

Case Brief

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Parties

C.I.T., Delhi

Appellant

Bharti Hexacom Ltd.

Respondent

Procedural Posture

Civil Appeal / Final Judgment

Legal Issues

  1. 1 Whether the variable annual licence fee paid under the New Telecom Policy, 1999 is revenue expenditure deductible under Section 37 or capital expenditure required to be amortised under Section 35ABB of the Income Tax Act, 1961
  2. 2 Whether the High Court of Delhi was correct in apportioning the licence fee as partly capital and partly revenue by dividing payments before and after 31 July 1999

Ratio Decidendi

The variable annual licence fee and the entry/one-time licence fee under the New Telecom Policy, 1999 are payments towards acquisition and continuance of the composite right to establish, maintain and operate telecommunication services; both are capital in nature and amortisable under Section 35ABB of the Income Tax Act, 1961. The Delhi High Court’s apportionment treating post-31 July 1999 payments as revenue was incorrect because the manner or measure of payment does not alter the capital character when payments relate to the same foundational licence obligation.

Court Disposition

appeals allowed

Orders

  • Set aside the Division Bench judgment of the High Court of Delhi dated 19 December, 2013 in ITA No.1336 of 2010 and connected matters and the related High Court judgments following it
  • Held that entry fee and variable annual licence fee under the New Telecom Policy, 1999 are capital in nature and amortisable under Section 35ABB of the Income Tax Act, 1961