Commissioner of Income Tax - VI v. Hutchinson Essar Telecom Pvt. Ltd

8. National Telecom Policy 1999 stands recorded in communication dated 22"'^ July, 1999. The said policy stipulates that licencee Would be required to pay one time entry fee and licence lee on percentage share of gross revenue. Entry fee chargeable Avould be the fee payable by the existing operator upto 31=^ July,1999 calculated upto the said date and adjusted' upon notional extension ol the I'cU'c 10 ol 47 ITA 133-6/2010 & com^- ^^ases. effective date. Xicence fee as a percentage of gross revenue under the licence shall be payable--AA^e.f August, 1999. The quantum of revenue share to be charged as licence fee woirld be finall)/ decided after obtaining recommendation of Telecom Regulatory Authority of India (TRAI) but meanwhile the Government had fixed 15% of the gross revenue of the licencee as provisional licence fee. On receipt of TRAI's recommendation by the Government, final adjustment of the dues would be made.

9. Clause (vi) of the said letter indicates that there Avere only two cellular operators in the area/service area and it was postulated that if either of the cellular operator did not accept the package, both the existing operators would continue the earlier licence till the validity of the said licence. In clause (vii), stipulated that upon migration to National Telecom Policy 1999, the licensees Avould forego right of operating inthe regime of limited number of operators as perexisting licencing agreement and would operate in multiple licence regime i.e. additional licences without any limit might be issued in a given service area. It was further stipulated that there shall be a lock-in of the present shareholding for a period of 5 years from the date of licence agreement and the transfer of shareholding directly or indirectly through subsidiary or holding companies shall not be permitted during this period. However., issue ol additional share capital by licencee companies/their holding companies, by issue of private placements/ public issues would be permitted. This lock-in time would not be applicable in case of transfer of shares by enforcement ofpledge by the lending iinancial institutions/banks duv, to defaults. The period of licence was stated lo be 20 years h:om the effective date of the existing licence agreement i.e., the 1994 ITA 1336/2010 &conn, cases. '''' agreement. Migration to National Telecom Policy 1999, ^A'as on the condition and premise that Llie condilions should be accepted as a package in entirety and simultaneously and all legal pioceedings shall be withdrawn and no dispute for the period upto 31'' July, 1999, shall be raised at any future date. After the terms were accepted, amendments intheexisting licence agreement would be signed.

10. The respondents liaA'e migrated and accepted the National Telecom Policy, 1999. Respondents herein in ITA Mos. 1328/2010, 1336/2010, 114/2012, 996/2011, 893/2010, 1680/2010, 1679/2010, 177/2010, 1333/2010 have paid the licence fee upto 31'^ July, 1999, i.e.- one time licence fee as stipulated in the letter/ communications dated 22nd July, 1999 and have treated the said payment as" capital expenditure.

11. Hutchinson Essar Telecom Pvt. Ltd., respondent in ITA NO. 417/2013 has not treated the fourth year payment under the 1994 agreement as capital expenditure but as revenue expenditure, and their contentions are beingexamined separately below.

12. In view ofthe legal issue involved, we are not 'referring to the factual details in respect of each assessment year i.e. details with regard to date of filing of return, income declared under normal provisions, book profits etc. We shall concentrate upon the legal issue raised and the facts relevant for determining the said legal issue. For the purpose of clarity, we have recorded and set out details ofthe writ petitions, name of the respondent-assessee, the assessment yeais and the amount involved; 12 ol 47 ITA 1336/2010 & conn, cases. ^ # SNo.. ITANo. Name of the Assessee Assessmenl Yeai- Amount Involved

1. 1328/2010 iBharti l-lexacdm'U'jcl. 2003-04 Rs.8,69,16,000/-

2. 1336/2010 2004-05 lls.l 0,89,74,250/-

3. • 114/2012 2006-07 Rs.27,60,36,300/-

4. 996/201 1 2007-08 Rs.48,83,07,556/-

5. 893/2010 Bharti Cellular Ltd. • 2000-01 Rs.27,82,30,588/-

6. 1680/2010 2001-02 •Rs.54,93,43,930/-

7. 1679/2010 2002-03 Rs.61,07,90,625/-

8. 177/2010 Bharti Airte! Ltd. 2005-06 Rs.2,76,48,900/- "Net amountdisallowed after disallowance and amortization.

9. 1333/2010 Bharti Telenet Ltd. 2000r0l Rs.4,80,67,869/-

10. 417/2013 Hutchinson Essar Pvt. Ltd 1999-2000 Rs. 18,64,57,000/-

13. The contention and the facts highhghted by the Revenue are lhat respondents were granted a Ucence under an agreement executed under the Indian Telegraph Act. This agreement dated 29"' November, 1994, in the case of Bharti Cellular Ltd. (date of agreement witheach respondents may be different butthe terms are identica]) states thatpursuant.to therequest of the licencee i.e. the respondent assessee, the authority had agreed to grcint licence to the assessee ontheterms and conditions appearing hereinafter to establish, maintain and operate cellulai" mobile sendees. The said agreement further stipulates that in consideration of mutual covenants and licence fee payable in advance, the licensor, i.e. the Government grants licence to the licencee, i.e. the assessee, to establish, maintain and operate cellular mobile service. The emphasis has been laid on the woids 'establish, maintain and operate' in the original licence and it was highlighted that it was only pursuant to licence agreement that the respondent assessees could establish tlie business. The National Telecom Pohcy 1999 did modify terms of the original licence but the.•new policy did not change the true natm"e and character of the licence fee. Only the method of computation was altered and changed. Therefore, the respondent assessees Avho accept and admit tliathcence fee payable under the 1994 agreement Avas capital in nature, cannot dispute and deny the capital nature of the same payment under National Telecom Policy 1999. Even under the 1994 agreement for the 4"' year, therespondent assessee had to pay the fixed sum per 100 subscribers. The nature and character of the payment was same but amount was modified to 15% of the gross revenue under the National Telecom Pohcy 1999. Further, mere payment of an amount in installments does not convert or change the capital payment lo revenue in nature. The criteria of once and for all payment or installment payment co-relatable to percentage of gross-turnover was not determinative of the truecharacter of the payment. True nature of the payment has to be determined on the basis ofthe adS'antage oi benefit procured which in the present case relates to initial set-up ol •business. Right to the licence had resulted in acquisition of right to • operate. Thus it was a capital payment. The term of the liccnce was/is 10 or 20 years from the date ofcommencement and therefore, the expenditure was capital in nature.

14. The contention ofthe assessee, on the other hand, was that the licence fee payable under the National Telecom Policy 1999 was revenue in nature. The earnings were/are shared. The licence fee depends upon the gross revenue and was/is payable yearly. Licence by itself was not an asset or aright which could be sold. Under the National Telecom Policy, 1999 there was no limit on the number of operators and the licence granted was non-exclusive.. New operators were issued licences and were required to pay one time licence fee for entiy and start of operations in addition to yearly turnover based licence fee. Onetime payment oflicence fee was capital in nature and PiiRC 14 III IC) ITA 1336/2010& conn, cases. ^ yearly payable licence fee was not capital in nature as" it was essential, and an amiual necessity/obligation to continue Lo do business. It was a running expense. Nature of expenditure incurred was not on addition to fixed capital but for maintaining and operating the business of telecommunication. The nature of expenditure should be judged in commercial sense. Annual variable expenditure did not create or add to a profit making apparatus. It was not partof machinery or a plant. The appellant was wrongly assuming that the licence fee paid on yearly basis was a source of profit. The licence fee paid on yearly basis was a fee payable for continuing business activity and on non payment, licence could/can be revoked. Thus, there was/is no enduring benefit. A licence being an indivisible right and cannot be bifurcated intoright to establish, operate and maintain.

15. Before we examine the legal position, we would like to first deal with and examine the contention as to whether or not licence under the National Telecom Policy 1999 was transferable and the effect thereof The licence stands issued to the company as the operator, but behind •the company are the real owners i.e. the shareholders. However, a shareholder is distinct and not synonymous with company to whom the licence under the Telegraph Act, has been issued. Clause (viii) of the National Telecom Policy, 1999 permits transfer of shareholding by the shareholders directly or indirectly after lock-in period of 5 years. Therefore, it bars the licencee i.e. respondents herein from registering or recording change ot shareholding pattern directly or indirectly with subsidiary company within such period. However, additional equity share capital by the licencee company or their holding companies by private placement oi public issues was/is permitted. We are concerned in the present ease with the licence granted to the respondent companies and the nature and character of the licence in their hands and not the value of the shares held by the shareholders, in spite of the fact that there was a lock in period or prohibition regarding transfer of shares for the period of[5] years and thereafter the shares ^vere transferable. There cannot be any doubt or debate that while computing the value of the share in the hands of the shareholder, the factum and position that the respondent company has been allotted the licence was/is a relevant and important factor. However, Ave do not think that this can be the sound and sole basis or ground to hold that the licence in the hands of the respondent company Avas/is a capital asset. Value of a share in the hands of a shareholder may not deterniinatively and conclusively reflect and answer the question whether the asset held by the company' was a capital asset. Market value ol a share is dependent - upon several factors including future prospects, nature of trade etc. These may not be an asset for the company. We cannot on this basis alone, determine and decide whether the variable licence fee paid on annual basis is capital or revenue in nature. At the, same time the license was/is an important and relevant aspect that determined/determines the true market value ot the respondent companies.

16. At this stage, it would be appropriate to refer to relevant case law on the subject though we did not find or come acioss any decision of the Supreme Court or the High Court directly apphcable to the factual matrix ofthe present cases. Starting point o!discussion on the said question invariably begins with the decision of the Supreme Court in the case of.Empire Jute Co. Ltd vs. Commissioner ofIncome Tax (1980) 124 ITR 1(SC). Revenue in the said case ITA 1336/2010 &conn, cases, Page K, or47 relied upon an earlier decision of the Supreme court in CIT vs. Maheshwari Devi Jute Mills Ltd [1965] 57 ITR 36.(80), wherein sale of loom hours were held to be in nature of capital receipt and hence not taxable. •The said decision was distinguished on several grounds but noticeably it was recorded that the said case had proceeded on acommon accepted basis that loom hours was'an asset. In Empire Jute Co. Ltd, (supra), on deeper elucidation of relevant facts, it was noticed that there was contractual agreeinent restricting the right of every miU to work their loohis to their full capacity as there was over capacity but low demand. This restriction had the effect of limiting the production and consequently the profits which the assessee could earn. Under the same agreement, one mill could transfer loomhours to another for consideration subject to conditions. Thus, purchase of loom hours had the effect ofrelaxing the restriction on operation of loom hours and enabled the purchaser to work their looms for longer duration and earn profits. Ihe Supreme Couit obsei-ved that capital expenditure was one made with aview to bring into existence an asset for enduring benefit to the trade. But this rule of enduring benefit was subject to and could break doAvn for good reasons. The nature ofadvantage has. to be considered in commercial sense and only when the advantage was m capital field, the expenditure could be disallowed by applying the enduring benefit test. Ifthe advantage consisted merely facilitating trading operations or enabling the management or conduct of business more etficiently or profitably, while leaving the fixed capital untouched, the said expenditure would be on revenue account, though the advantage may endure for an indefinite period. Enduring benefit test, therefore, was Piiae 17 oT'l? ITA 1336/2010 & ooiin. cases. not conclusive and cannot be mechanically applied without considering the commercial aspect.

17. The second test Avhich can be applied was fixed and circulating capital test. Fixed capital being what the owner turns to profit by keeping it in his possession; circulating capital is what the assessee makes profit by parting or letting the product/asset change masters/hands. This test could be applied when the acquisition of asset clearly falls within one of the two categories but the test would breakdown where the expenditure does not fall easily Avithin the specified category. Thedemarcation line between assets outofwhich profits were earned and the profit made upon assets or with assets, was thin and difficult to draw in several cases. It was observed that purchase of loom hours was not like circulating capital (labour, raw material, power etc.), but "loom hours" Avere also not a part of fixed capital. Revenue's contention that purchase of loon;! hours was for acquisition of source of profit or income and, therefore, capital expenditure, Avas rejected on the ground that source of profit or income Avas the profit making apparatus which had remained untouched. There Avas no enlargement of permanent structure or capital assets. Primarily and essentially the expenditure Avas relating to operation or AA'orking of looms, Avhich constituted piofit earning apparatus. The Supreme Court, however, added aword ofcaution that in the field of taxation, analogies could be deceptive'and misleading but nevertheless they referred to an example of an assessee acquiring raw material regulated under a quota system to increase his production. Money spent to acquire the quota right, it Avas obseived would entitle the assessee to acquire more raAv material to increase profitability ofthe profit making apparatus and would undoubtedly be ITA 1336/2010 &conn, cases. Page Idol'17 h revenue expenditure as it was a part of the operating cost. However, the said example relates to already existing or ongoing industr)'. Outgoing whether it was revenue or capital, itwas highlighted, should depend upon practical and business point ofview, rather than Juristic classification of legal rights. The question should be judged in the context of business necessity or expediency; was the expenditure a part of assessee's working expenditure or a part o.rproccss of profit earning; whether the expenditure was necessary to acquire a right ol' permanent character, the possession of which was a condition for carrying on trade ?, etc.

18. It may be now appropriate and proper to refer to Judgments of the Supreme Court relating to lease agreements as they may have. some bearing and. elucidate legal principles which are of relevance. li\Assam Bengal Cement Co. Ltd. vs. CIT, West Bengal (1955) 27 ITR 34 (SC), payment made by the assessee for acquiring lease of mine stone quarries for manufacture of cement lor 20 years on payment of yearly rent as well as protection fee to ward off •competition, was held to be capital expenditure. In the said case, the consideration payable was per annum but was for the entire or whole duration of the lease and it protected and gave right to' the assessee to carry on business unfettered from outsiders. It was held that the expenditure was not apart ofthe working or operational expenses but for acquiring.a capital asset. Similarly, in Member ofthe Board of Agricultural Income Tax, Assam vs. Sindlmrani Oumduram and Ors. (1957) 32 ITR 169 (SC), salami or lump sum payment for non recurring nature made by the prospective tenant to the landlord as consideration for settlement of agricultural land and parting with certain rights paid anterior to landlord and tenant relationship, it was rrA 133.6/2010 &. conn, rases. ol 4) emphasized that the payilient was not ibr use of land but for the land to be put to use by the assessee. Salami was not rent paid in advance.

19. In Enterprising Enterprises vs. Income Tax (2007) 293 ITR 437, the Supreme Court affirmed the decision ofMadras High Court reported in [2004] 268 ITR 95, after referring to Fingle Industries Ltd vs. CIT [1960] 40 ITR 67 (SC), Gotan Lime Syndicate v. CIT [1966] 59 ITR 718 (SC) and Aditya Minerals Pvt. Ltd. vs. 'CIT [1999] 239 ITR 817 (SC), stating that distinction lies between the case ofwhere royalty or rent was paid and where the entire amount of lease premium Avas paid either at one tune or in mstallments. Royalty or rent would be revenue expenditure, whilethe latterwouldbe capital expenditure.

20. This brings us to an earlier decision of the Supreme Court in the case ofPingle Industries Ltd. vs. Commissioner ofIncome Tax, Hyderabad (supra). The majority judgment held that the quolnama which entitled the assessee to extract stones fi:om quarries for aperiod of 12 years on annual payment (some amount was paid madvance,to secure annual payment) was capital expenditure as the assessee was extracting stones which after dressing were sold as flag stones. It was observed that the lease was for long term with right to extract stones in six villages, without limitby measurement or quantity, and entitled the assessee to exclusive rights. The majority held' that the. expenditure was capital in nature and cannot be equated with cases wherein assessee had acquired right to pick up tendu leaves for manufa-cture of bidi, which was equivalent to purchasing of raw material for manufacturing busmQSS. It was observed that stones in Page 20 01'-16 situ were stotlc in trade ofbusiness, but lease payments were capital in nature as the stones only upon extraction became stock in trade. The pa^'ment though periodical was neither rent nor royalty, but payment was for acquiring an asset for enduring benefit i.e. right to extract stones and not stones itself.

21. In Jabbar (M.A.) vs. CIT, Amdra Pradesh [1968j-68 ITR 493 (SC), the assessee had taken a short term lease of 11 months for quarr^'ing purposes to carry away, sell and dispose ofsand which was lymg on the surface of river bed without excavation or skilllul extraction. The said expenditure was held to be ofrevenue character, in spite of fact that the interest on land Avas also conveyed, observing that this was not decisive. The decisive factor was the object for which the lease was taken and the nature ofpayment, when and while -obtaining the lease. This decision was distinguished by the Supreme Court in R,B. Setk Moolclumd Suganchand vs. CIT, New Delhi (1972) 86 ITR 647 as minerals in this case were part of the land and had to be won, extracted and brought to the surface unlike the case of Jabbar (M.A.) (supra) where the minerals 'i.e. the sand was on surface and thus was acase relating to expenditure for acquisition ol stock in trade and, revenue in nature. Similar treatment was given to the licence fee paid for one year for prospectmg emeralds which was •in addition: to royalty on emerald excavated and sold. •Ihe first part •i.e. the licence fee for prospecting, it was held was capital. The contention that the licence fee was not alease rent and did not create interest in land was rejected, obsei-ving that prospecting licence was issued before operations had started and was paid irrespective of the mineral obtamed. This demonstrated that the object'for the payment • was to initiate business; though the period of licence was one year it Page 21 oM[7] did not make tlie payment, revenue payment. Prospecting license ice cannot be equated with payment for sl.ock in trade.

22. In CIT vs, Bombay Burmah Trading Corporation (1986) 161 ITR 386, the Supreme Court obsei-ved that lump sum consideration paid on surrender ofexport rights in aforest lease, Avhere the assessee had right to extract and cut timber and remove them on payment ol royalty, was capital payment. The payment was for sterilization of the profit making apparatus i.e. the capital asset. Ihe forest lease AA'as also not a stock in trade. The determining factor, it was.observed was nature,of trade in which the asset Avas employed. If the payment made, represented profit in anew form, itwould be income, but ifthe • money paid related to structure ofassessee's profit making apparatus and affected the conduct of business, the sum received for cancellation orvariation of agreement, would be a capital receipt.

23. In Commissioner ofIncome Tax vs, Madras Auto Services (P) (|^ Ltd. (1998) 233 ITR 468 (SC), the assessee had incurred expenditure on demolishing the existing building and constructing a new building at their own expense. The neAV building belonged to the lessoi and the assessee remained a lessee but at a low rent. Term for lease was 39 years buL the Supreme Court held that the expenditure was revenue in nature as the newly constructed propert)/ from the beginning was owned by the lessor. It was emphasized that the asset created, though of endurmg nature, did not belong to the assessee (there have been statutory amendments but Ave are not required to examine the said amendments in the present decision. The' ratio is relevant). Hp Reference was made to Lahshmiji Sugar Mills Co. P. Ltd. vs. CIT (1971) 82 ITR 376 (SC), wherem expenditure incurred on Page 22 0147 riA 1336/2010 & conn, cases. construction and development of roads between different sugarcane producing centers and sugar factories was held to be revenue m nature as it Avas incurred for the purposes of facilitating running of assessee's motor vehicles etc. Similarly in ]LH. Sugar Factory and • • 1- Oil Mills (P) Ltd. vs. C/r(1980) 125 ITR 293 (SC), amount paid as contribution for constmction of roads in an area around the factory under a scheme was held to be revenue innature. CIT vs. Associated Cement Companies Ltd. (1988) 172 ITR 257 (SC) was quoted and obseiVed that the expenditure incurred to concrete the mam road was revenue as the installation and accessories were, assets of the municipality. This was despite the fact that the assessee had secured immunity from liability to pay.municipal rates.and taxes i:or 15 years. In these cases, the expenditure had been incurred to bring about some kind ofenduring benefit but did not bring into existence any asset for the benefit of the assessees. The expenses were made for the purposes of conducting business more profitably arid fruitfully and the asset created did not belong to the assessee. It was noticed that •the creation of asset, resulted in saving of considerable revenue expenditure in form oflower rent.

24. In Alembic Chemical Works Co. Ltd Vs. Commissioner of Income Tax, Gujarat (1989) 177 ITR 377 (SC) the assessee had acquired ]aiow-now to produce higher yield and sub-cultuie of higli yielding range of penicillin. The said expenditure was in the line of existing manufacture. It was lump-sum payment but the expenditure was held to be revenue in nature prijuariiy on two grounds that it was inculTed for the purpose of day to day busmess, which was manufacture of penictllm and, therefore, not for entirely a new venture unconnected and different from existing business. Secondly. Page 23 ol 'l? ITA 1336/2010 conn, cases. it would be unrealistic to ignore rajDid advances.^ in research in antibiotic and attribute a degree of durability and jDerraanence to teclinical know-how in this fast, changing area. Rapid strides m science and technology in the field of medicines cannot be readily pigeon-holed as capital outlay. Moreover, it was.,not a case of exclusive acquisition.

25. Having reproduced several Judgments -on the question of the decisive tests, it would be appropriate to notice one decision wherein expenditure incurred has been held to be in part capital and revenue because the tests show,that expenditure incurred was for several considerations i.e. there was overlapping of capital and revenue expenditure, This aspect has been ^examined in detail separately. below. In Jonas Woodhead and Sons (India) Ltd. vs. Commissioner of Income Tax (1997) 224 ITR 342 (SC), question arose whether 25% of the amount paid as royalty to the foreign company for technical information/ laiow how relating to setting up of a plant for manufacture of products was capital expenditure. Referring to the issue in question, itwas observed that the answer would depend upon several factors including whether the assessee had set up a completely new plant with a new process, new technology, or the technical laiowhow was for betterment of the product which w^is already being produced; was it a part and parcel of existing business or a new business?, Whether on expiry of period of agreement, the assessee was required to give the plans, drawings etc., or could continue to •manufacture the' products?, etc. It was accordingly observed as under:- "In the case of Alembie Chemical Works Co. Ltd. v. Commissioner of Income-Tax Gujarat 24 46 ITA 1336/2,010 & conn, cnses. ^ []989]177ITR377(SC), the question for consideraLion was whether the lump-sum payment made by the assessee for obtaining the know-how to produce'higher yield and sub-culture of high yielding strain of Penicillin would be a capital expenditure or a revenue expenditure. The Tribunal had rejected the claim of the assessee holding the expenditure to be a capital expenditure. On appeal to this Court it was held: (i) ]t would be unrealistic to ignore the rapid advances in research in antibiotic medical microbiology and to attribute a degree of endurability and permanence to the technical know-how at any particular stage in this last changing area of medical science. The state of the art in some of these areas of high prioi-ily research is constantly updated so that the know-how could not be said to bear the element of the requisite degree of durability and no ephemcrality to shai-e the requirements and qualifications of an enduring.capital asset. The rapid strides in science and technology in. the field should make us a little slow and circumspect in too readily pigeon-holding an ouLlay, such as •this, as capital,

(ii) In the infinite variety of situational diversiities in which the concept of what is capital expenditure and what is revenue arises, it is well-nigh impossible to formulate any general rule, even in the generality of cases, sufficiently accurate and reasonably comprehensive, to draw any clear line ol denial cation. However, some broad and general tests have been suggested from time to time to ascertain on which side of the line the outlay in any particular case might reasonably be held to fall. These tests are generally efficacious and serve as useful servants; but as masters theytend to be overexacting.

(iii) The question in each case would necessarily be whether the tests relevant and significant in one set oi circumstances are relevant and significant in the case on hand also. Judicial metaphors are narrowly to be watched, for, starting as devices to liberate thought, they end often by enslaving it. The idea of "once for all" payment and "enduring benefit" are not to be h'cated as something akin to statutory conditions; nor are the notions of "capital or "revenue" ajudicial fetish. What is CLspital expenditure and what is revenue are not eternai verities but must 25 ol'4(i needs be flexible so as to respond to the changing economic realities of business. The expression "asset or advantage of an enduring nature" was evolved to emphasise the' element of a sufficient degree of durability appropriate 1:0 the context." 26.. At this Stage, it Avould be relevant to clarify and elucidate the once and for ail payment test. It is not necessary that once and for ail payment would result in an enduring benefit nor is it a firm rule that periodical payments do not show enduring benefit. I'hc said test has its apparent limitation, if we apply the said test ^'Vithout equal importance to the questions; Avhat was acquired and why payment was made? The real and core test is whether payment (whether once and for all or in installment) was tor acquisition of capital asset oi" rights of enduring benefit. Quantum of payment is not relevant for determinijig the said question as it is the nature and quality o( payment,and not quant-um or manner of payment Avhich is decisive. Lump-sum payment can represetit revenue expenditure, rt it is ^ incurred for acquiring circulating capital though payn^cnt is made iiV • one go and similarly payment made in installments can in lact be loi acquiring a capital asset, price of which is paid for over aperiod o[1] time.

27. It would be relevant here to produce the tests or principles laid down in a recent decision ofthis court in CITvs.

J.IL Synthetics [2009] 309 ITR 371 (Delhi) which are as under;- " An overall view of the Judgments of the Supreme Court, as well as ofthe High Courts would show that the following broad principles have been forged over the years which require ^ to beappliedtothefacts ofeachcase;

(i) the expenditure incurred towards initial outlay of business would be in the nature of capital Paee2f)oi'46 ITA 1336/2010 & conn. case.s. expenditure, however, iF the expenditure is incurred Avhile the business is on going, it'. would have to be asccriaincd if the expenditure is made for acquiring or bringing into existence an asset or an advantage of an enduring benefit, for the business, if that be so, it will be in the nature of capital expenditure. If the expenditure, on the other hand, is for running the business or working it with a view to produce profits it would be in the nature of revenue expenditure;

(ii) it is the aim and object of expenditure, which would determine its character and not the source and manner of its payment;

(iii) the test of "once and for all" payment, i.e., a lump sum payment made, i.n respect of", a transaction is an inconclusive test. The. character of payment can be determined by looking at what is the true nature of the asset which is acquired and not by the fact whether it is a payment in "lump sum" or in an instalment. In applying the test of an advantage of an enduring nature, it would not be proper to look at the advantage obtained, as lasting forever. The distinction which is required to be drawn is, whether the expense has been incurred to do away with, what is a recurring expense for running a business as against an expense undertaken for the benefit of the business as a whole;

(iv) an expense incurred for acquisition of a source ofprofit or income would in the absence ofany contrary circumstance, be in the nature of capital expenditure. As against this, an expenditure which enables the profit-niaking structure to work more efficiently leaving the source or the profit making structure untouched would be in the nature of revenue expenditure.. In other words, expenditure incurred to fine, tune trading operations to enable the management to run the business eflectively,' effi-ciently and profitably leaving the fixed assets untouched would be an expenditure of a revenue nature even though the advantage obtained may last for an indefinite period. To • that extent, the test of enduring benefit or 27 o( 46 (g/ advantage could be considered as having • broken down;

(v) expenditure incurred for grant of licence which accords "access" to technical knowledge, as against, "absolute" transfer of technical • knowledge and information would ordinarily be treated as revenue expenditure. In order to sift, in a manner of speaking, the grain from the chaff, one would have to closely look at the ' attendant circumstances, such as: (a) the tenure of the licence. (b) the right, ifany, in the licensee to create further, rights in favour of third parties,

(c) the prohibition, if any, in parting with a confidential information received under the licence to third parties without the consent of the licen-sor,

(d) whether the licence transfers the "fruits of'

(c) whether on expiry ofthe licence the licensee is' required to return back the plans and designs obtained under the licence to the licensor even though the licensee may continue to manufacture the product, in respect of which' "access" to knowledge was obtained during the subsistence of the licence. (f) whether any secret or process of manufacture was sold by the licensor to the licensee. Expenditure on obtaining access to such secret ' process would ordinarily be construed as capital in nature;

(vi) the fact that the assessee could use the technical knowledge obtained during the tenure of the licence for the purposes of its business after the. agreement has expired, and in that sense, resulting in an enduring advantage, has been categorically rejected by the courts. The courts have held that this by itselfcannot be decisive because knowledge by itself may last for a long period even though due to rapid change of technoiogy and huge strides made in the field of ITA 1336/2010 &coim. cases. ' science, Ihe knowledge inay with passage of time become obsolete;

(vii) while determining the nature of expenditure,.

given the diversity of human affairs and complicated nature of business; the test enunciated by courts have to be applied from a business point of view and on a fair appreciation of the whole fact situation before concluding whether the expenditure is in the nature of capital or revenue."' In CIT VS. Saw Pipes Limited (2008) 300 Il'R 35, the Delhi High Court observed, that as the service lines did not belong to the assessee and the expenses were incurred to enable the assessee to conduct its business more efficiently, the expenditure was revenue in nature.

28. ' Recently, this Bench had dealt with a similar quesvion in the case of Oracle India Pvt. Ltd./Oracle SoftAvare India Limited, ITA Nos. 25/2012 and 797/2006 and other connected cases decided on 25"' November, 2013 and it was elucidated thatunderlined purpose of differentiating capital and revenue expenditure was matching ofcosts with income or receipts i.e. direct association between cost incurred and earning of specific item of income to compute true and correct taxable income. In Oracle India Private Ltd. (supra). it has been highlighted that while detenaiining the question whether payment was capital or revenue in nature, the primary aim of the court or the authority was to determine income earned by the assessee duiing two points of time without impairing his capital or incurring personal debts. The concept of capital maintenance Avas critical in distinguishing whether the expenditure was for capital or revenue purposes. Reference can also be made to the decision of Delhi High Court in CIT vs. Sharda Motors Industry Ltd. (2009) 319 ITR 109 (Del.). 6v

29. When we turn to the facts of the present ease, the following/n^ position emerges: i. The licence was issued under a statutory mandate and was required and acquired, before the commencement of operations or business, to establish and also to maintain and operate cellular telephone services. ii. The licence Avas for initial setting up but, thereafter for maintaining and operating cellular telephone services during the term of the licence. iii. Contrary to what was stared, under the licence agj-eemcnt executed in 1994 the considerations paid and payable were with the understanding that there would be only two players who Avould haveunfettered right to operate and providecellular telephone service in the circle. The payment, therefore, had element of warding off competition or protecting the business from thirdparty competition. iv. Under the 1994 agreement, the licence Vv'as initially for 10 years extendable by one year or more at the discretion ol the Government/authoiit}'. •

V. 1994 Licence was not assignable or transferable to a third party or by way of asub-licence or In partnership. There was no stipulation regarding transler or Issue ol shares to thlid parties In the company. vl. Under the 1994 agreement, the licenceeAA^as liable to pay hxcd. licence fee for first 3 years. For 4'' 5'ear and onwards, the licencee was liable to,pay variable licence fee @Rs.5,00,000/-l'ci"c 30 ol 'tO per 100 subscribers or part thereof, with a specific stipulation on minimum licence fee: pa3'able for 4"^ to 6''' 3'ear aind with modified but similar stipulations from 7^'' year onwards.. vii. The licence could be revoked at any time on breach of the terms and conditions or in default of payment of consideration by giving 60 days' notice. viii. The authority also reserved the right to revoke the licence in the interest ofpublic by giving 60 days' notice. ix. Under 1999 policy, the licencee had to forego the right of operating in the regime of limited number,of operators and agreed to multiparty regime competition where additional licences could be issued without limit.

X. There was lock in period on the present shareholding for a period of 5 years from the date of licence-agreement i.e. the effective date and even transfer of shareholding dijrectly or indirectly through subsidiary or holding company, was not permitted during this period. Tliis had the effect of 'modifying' or clarifying the 1994 agreement, Avhich was silent. xi. Licence fee calculated as a percentage of gross revenue Avas payable w.e.f. f August, 1999. This was provisionally fixed at 15% of the gross revenue of the licencee but was subject to final decision of the Government,about the quantum of revenue share to be charged as licence fee after obtaining recommendation of the Telecom Regulatory Authority of hidia (TRAI). ITA 1336/2010 &conn, cases. Page 31 ol -Ifi xii. At least 35% of the outstanding dues including interest payable as on 31®^ July, 1999 and liquidated damages in full had to be paid on or before 15^'^ August, 1999. Dates for payments of arrears were specified. xiii. Past dues upto 31'^ July, 1999 along with liquidated damages had to be paid as stipulated in the 1999 policy, on or before 31 January, 2000 or earlier date as stated. xiv. The period of licences under 1999 policy was extended to 20 years starting from the eftectlA'e date.

XV. Failure to pay the licence fee on yearly basis would result in cancellation of licences. Therefore, to this extent licence fee was/is payable for operating and continuing operations as cellular telephone operator.

30. Having noted the aforesaid Victual position, we feel that payment of licence fee was capital in part and revenue in part and it •would not correct to hold that the whole fee was capital orrevenue in entirety. The licencees i.e. the assessees in question required a licence in order to start or commence business as celluar telephone operator. The requirement to procure alicence or pay licence fee was a precondition before the assssee could commence or set up the business in question. The fee was certainly paid to the Government for permitting and allowing an assessee to set up/sLart cellular telephone service which otherwi^se was not permitted or prohibited under the Telegraph Act. hi away, it was aprivilege granted to the assessee subject to payment and compliance with the terms and conditions. Page: 32 of 47

31. Licence fee under the 1994 agreement ensured that there would be only two private operators in a circle and thus their limited monopoly would be protected and competition by way ofthird party private players was warded off. Restricted monopoly ofLhe licencees was ensured. The licence fee fixed included an element towards the said right of the licencees. 1994 agreement, for first three years postulated a lump-sum payment irrespective of number of subscribers. Minimum fee was also prescribed for later years. It appears that licencees were unable to make payments as per the 1994 agreement and under the 1999 policy, were required to pay lump-sum ' payment for past arrears before specified dates..

32. There was restriction under the 1994 agreement, on transfer of the licence or even grant sub-licence but there was no specific. restriction on change ofshareholding. 1999 policy ensured that even shareholding did not change for aperiod of5years from the effective date. The effect of acquiring the licence has been examined in paragraph 15 above. The licence was not assignable or transferrable as such, but induction of share capital, transfer of shares etc. was permitted subject to conditions in the 1999 policy. In commercial sense the licence constituted and continues to be the most valuable right which the company has and possesses. Thus, the- payment made is for acquiring the licence which is essential and mandatory, prerequisite for establishing the business and for operations or continuance and running of business. Yet, as observed belov/, it cannot be equated with one time enti[7] fee which aperson has to pay to establish the business. Ittherefore, represents cohiposite payment, both capital and revenue.

33. • The hcence fee was imposed and payable under Uie Indian Telegraph Act and other statutory provisions and was/is mandatory. Failure to pay the same would/will result in discontinuance or stoppage of business operations. Under 1999 policy, the amount payable speaks of sharing of gross revenue earned by the service provider from the customers. 1994 agreement as noticed did have a provision for sharing but with minimum payment stipulation. In case of non-payment of hcence fee, the licence could be ievoked and licencee was not permitted to carry on and continue cellulai telephone sei-vice. Thus, the licence fee payable was/is equally with the objective and purpose to maintain and operate cellukir telephone sei-vices. Itwas also an operating expense and non payment can lead to cancellation as one of the consequences. Endurcment requires current expenses and is subject to payment on revenue share. ^It will not be correct to hold or propound that entire payment during the term of licence, is deferred capital payment. This Avas/is not the intent under the 1994 agreement or 1999 policy. The intent is to also shar the gross earning to maintain and operate the licence.

34. The hcence fee as such is similar to both prospecting;f:ee, acquisition of right to lease as well as leases which enabled removal •ofsand/tendu leaves, etc. as nothing has to be won over, or extracted. Part paymentwas towards an initial investment.whicb an assessee had to make to establish the business. It was aprecondition to setting up ofbusiness. It has element and includes payment made to acquire the 'asset' I.e. the right to establish cellular telephone service. But the licence permits and allows the assessee to maintain, operate and continue business activities. Payment of licence fee has certain Page 34 or47 ITA 1336/2010-& conn, cases. 'C ingredients and is like lease rent which is payable from time to time to be able to use the licence.

35. The licence acquired was initially for 10 years' and Lhe term was extended under the 1999 policy to 20 years but this itself does notjustify treating the licence fee paid on revenue sharing basis under the 1999 policy as a capital expense made to acquire an asset. As observed in Empire Jute Co, Ltd, (supra), the enduring benefit test has limitation and cannot be mechanically applied without considering the commercial or business aspects. Practical and pragmatic view and considerations rather than juristic classification is the determinative factor. The payment of yearly licence lee on revenue sharing basis is for carrying on business as cellukir telephone operator. It is a normal business expense.

36. Read in this manner, the licence granted by the Government/ authority to the assessee would be a capital asset, yet at the same time, the assessee has to make payment on yearly basis on the gross revenue to continue, to be able to operate and run the business, it Vi'ould also be revenue in nature. Failure to make stipulated revenue sharing payment on yearly basis would result in forfeiting the right to operate and in turn deny the assessee, right to do business with the aid ofthe capital asset. Non-, payment will prevent and bar an assessee from providing services.

37. Counsel for the Revenue has relied upon decision of the Himachal Pradesh High Court in Mohan Meakin Breweries Ltd. Fs'. Commissioner ofIncome Tax, (1997) 220 ITR 878. In the sakl case the High Court has held that payment made to the State towards license fee or permit under the provisions of Punjab Excise Act and Puiie35ol47 ITA 1336/2010 & conn, cases.. ^ V Punjab Distilleries Rules applicable to the State ofHimachal Pradesh, was capital expenditure. The imposition was for construction, lor working ofdistillery and referred to manufacture of different kinds of liquor. We respectfully doubt the ratio of the said decision to the extent it obsei-ves that license.fee for working of the distillery and relating to quality/kind ofliquor would be capital expenditure. The expenditure incuiTed for operating or running of distillery Avould not be capital expenditiire as it relates to and is apart of the operational expenses. These cannot be equated with capital expenditure incurred in the form of fee paid to the Registrar o! Companies at the time ol fresh incorporation, the analogy drawn in the said decision. The Division Bench ofHimachal Pradesh High Court in the said decision has' quoted the following passage from "Kanga and Palkhivala's the Law and Practice of Income-tax, Eighth Edition,'Volume 1" "l/icense, permit and monopoly. — There are some early English cases on this topic which have lo be used v/ith caution. Payment by the lessee of licensed hotel premises to the local authorities as the 'monopoly value' on the grant of a three year license was held to be capital expenditure on the ground that the monopoly right oftrading for three years as a licensed victualler attained the dignity of a capital asset. • Likewise, money expended by'a brewery firm in an attempt (successful or unsuccessful) to acquire new licensed premises or by a public carrier to obtain a license for a larger fleet, of vehicles or the price of a license granted to a carting contractor for a period of eight years to deposit eaith, slag, etc., on the land of the licensor, was held, to be capital expenditure. The law has evolved considerably as a result ofacceptance of the crucial principle that the distinction between capital and revenue expenditure should be determined Irom the piactical and business view point and in accordance with.sound accountancy principles, eschewing the legalistic appioach. A license fee is revenue expenditure, and payments made to the State for a license or permit are none the less deductible although the license or permit may carry with it an exclusive right, where the 'monopoly' or the exclusive cliaracter of the Pnae jG oI ^7 right is incidental" to the license or permil:. Annual payments'^ made to the State, in lieu of tax on, motor vehicles per trip, for the exclusive right to ply buses on a certain, route, are revenue disbursements, and so also are royalties paid to the State for a monopoly right to excavate raw materials or stock-in-trade or for an exclusive license to manufacture sugar."

38. In Mohan Meakin Breweries Ltd (supra) the Division Bench righU}' observed that that the aforesaiid passage supports the case of the assessee. Thus, Ave observe that the expenditure incurred for estabhshing or for setting up/construction of an}.' factory/business would be capital, but the amount paid on yearly basis for running or operation of the factory/business "vvould be normally revenue in natxire.

39. The next question or issue which arises is whether the Court can bifurcate and divide the licence fee into capital and revenue and what percentage or ratio should be attributed to revenue and capital account. It is the conterition of the Revenue that the respondent assessee i.e. Bharti Cellular Ltd., Bharti Hexacom Ltd. and Bharti Airtel Ltd. had themselves treated and regarded the licence fee payable under the 1994 agreement as capital expenditure.. Even in case of Hutchinson Essar Pvt. Ltd., licence fee paid under 1994 policy for first three years was treated by the assessee as capital expenditure. In the fourdi year Hutchinson Essar Pvt. I.td. has treated the variable licence fee^ payable subject to mitumum of @ Rs.5-,00,000/- per 100 subscribers as revenue expeiiditure and the other assessees have treated the revenue sharing licence fee under the 1999 policy as revenue expenditure. The 1999 policy has to be, read alongwith original agreement but it did make asubstantial dent md substantially modified the original agreement. Under the 1999 policy, the new rrA ITi.'ie/lOlO &conn, cases. I'iigeHV or-if, entrants were liable to pay ejitry fee which was the total liccncc fee payable upto 31'^ July, 1999, and thereafter they A-vere liable to pay the variable licence fee. Thus, the new entrants have clearly paid the' "capital" entry or establishment fee and then are obliged to pay operating or maintenance fee in form ofvariable licence fee.

40. In Jonas Woodhead and Sons (India) Ltd, (supra), the Assessing Officer had himself treated 25% of the amount paid as royalty as capital and the balance amount was treated as revenue expenditure. Similarly inSouthern Switch GearLtd. vs. CIT{\99'&) 232 ITR 359, the Supreme Court has affirmed decision of the Madras High Court in CIT V5'. Southern Switch Gear Ltd. (1984) 148 TFR 272, wherein royalty payable was apportioned and 25% thereofwas treated as capital payment or expenditure on the ground that the right to manufacture certain goods exclusively in India should be taken as an independent right secured by the assessee from the tbreigir company and this right was of enduring nature. The more authoritative and lucid discussion for the purpose of die present controA'ersy is in CIT, Madras vs. Best and Co. (Pvt.) Lid. (1966) 60 ITR 11(SC). In the said case, the respondent assessee was carrying on business and had innumerable agencies. Compensation was received on account of cancellation of one agency and the question was Avhether the said compensation Avas capital or revenue in nature. Majority judgment ansAvered the said question observing thatcompensation and loss ofagencies could be both capital and revenue depencling upon facts of each case and Avhether the cancellation had ^ affected the earning apparatus or structure from physical, financial, commercial and administrative point of vIcav. Fhe ansAver requited examination; how many agencies the assessee had; their natuie, how many agencies, were lost and what was the effect on the income as well as the structure of the entire business; whether the loss of agency was ordinary incident in the course of business etc. In the said case, compensation received was held to be revenue expenditure as the respondent assessee had innumerable agencies in different lijies and had given up only one, to continue business in other lines. Loss of agency, it was observed, was in normal course of business and being a part of normal business, the amount received as compensation was revenue in nature. At the same time, it was accepted that tlie compensation paid/received was also on - account of restrictive covenant for a specified period under which the assessee had undertaken not to take up competitive agency. It v\'as observed that compensatioii attributable to the restrictive covenant was a capital receiptand, therefore, not taxable. It was observed;- • "In the present case, the covenant was an independent obligation undertaken by the assessee not to compete with the new agents in the same field for a specified period. It came into operation only after the agency was terminated. It was wholly unconnected with the assessee's agency termination. We, therefore, hold that; that part of the compensation attributable to the. restrictive covenant was a capital receipt and hencc not assessable to tax. The next questions whether the compensation paid is severable. If the compensation paid was in resp.ect of two distinct matters, one taking the character of a ' capital receipt and the other of revenue receipt, we do not see any principle which prevents the apportionment of the income between the two matters. The difficulty in apportionment cannot be a ground for rejecting the claim either of the Revenue or of the assessee. Such an apportionment was sanctioned by courts in Wales v. Tilley, Carter v. Wadman (H.M. and T. Sadasivam

V. Commissioner of Income-tax, Madras. In the present case apportionment ofthe compensation has to be made on a reasonable basis bet\veen the loss of the agency in ITA 1336/20.10 & conn, cases. the usual course of business and the restrictive r covenant. The manner of such apportionment has '. perforce to beleft to the assessing authorities

22. The answer to the question referred to the Higli.Court is that only such part of the sums of Rs. 66,790 • and Rs. 3,35,371 as is attributable to the loss of the agency is assessable under section 10 ofthe Act for the assessment years 1951-52 and 1952-53. We accordingly modi5' the answer given by the High Court in 'ihat regard." ' • ' In Tilly v. Wales (Inspector of Taxes) [1943] A.C. 386, the House o.t Lords obsei-ved that the amount paid was partly in consideration of surrender of assessee's right to pension and partly for surrender of increased salaiy under an agreement. Pension amount was held to be ' capital and not taxable but, the sum paid for reduction msalary was taxable. The amount had to be apportioned reasonable for the two consideratio,ns.

41. Thus, it would be appropriate and proper to apportion the licence fee as partly revenue and partly capital.

42. The next obvious question is, on what basis apportionment should be done and What could be the proportion of qDportionrnent between capital and revenue expenditure. We have given due consideration to the said issue and felt that it would appj-opriate and proper to divide the licence fee into two periods i.e. before and after "^1^' July, 1999. The hcence fee paid or payable for the period upto 3ist 1999 i.e. the date set out in the 1999 pohcy should be treated as capital and the balance amount payable on or alter the said date should be treated as revenue. There are several reasons why we have taken the said date as a cut-off point, rather than partly apportioning expenses through the entire term ot the hcence., Ihese reasons are elucidated in the paragraph below. l'a|;e 40 or46 rrA 1336/2010 & conn, cases. •,

43. Licence fee was payable for establishment, mainLenance and operation ofcellular telephone service. Establishment and set up took place in the initial years and thereafter the payments made were/are for operation or maintaining the cellular telephone service. Initial outlay and payment, therefore, is capital in nature, whereas the outlays and payments made subsequently are to operate and maintain the sei-vice. 1999 policy in the form of letter dated 22'!'' July, 1999 also refers to one time entry fee which is chargeable and had to be calculated as licence fee dues payable upto 31''July, 1999 and licence fee Avas thereafter payable on percentage share of gross revenue. The neAA' licences issued to others also stipulated one lime entiy fee and then licence fee payment on sharing basis. 'In view of the new 1999 policy, the earlier policy which restricted competition, underwent a change and licencees forgo their right to operate m the regime of limited number ofoperators, /-mother reason why Ave feel that lisence fee payable for the period on or before 31 July, 1999 should be treated as capital and the amount payable thereafter as levenue, is justified and appropriate in view of Section 35ABB. We,have already quoted the said section aboA^e. The provision provides that licence lee of capital nature shall be amortized by dividing the amount by number ofremainder years of licences. Thus, the capitalized amount of licence fee is to be apportioned as a deduction in the unexpired period of the licence. The provision Avill have ballooning eflect with tmiortized amount substantially increasing mthe later years and in the last year the entire licence fee alongwith the brought forward amortized amount Avould be alloAved as deduction. Alter aparticular point of time, deduction allowable under Scction 35ABB Avould be more than the actual payment by the assessec as Ucence lee for the Paie 4! said year. This would normally happen licence period. Section 35ABB, therefore, ensures that the'capital ' payment is duly allowed as adeduction over the term and once the expenditure is allowed, it would be reven thetaxrates remain the same during this period.

44. • ITANos. at serial Nos. 1 to 9 above license fee, which is to be shared under the No. 417/2013 filed against Hutchison Essar Ltd. relates to the period of variable license fee payable for the fourth year under the 1994 Agreement.

45. The effect thereof is that we are expenditure interms ofthe tenure as pert, nature, whereas if we apply the 1994 treating about 40% of the expenditure a; after the mid-term of the AC or tax neutrEil provided primarily relate to variable 1999 Policy whereas, ITA treating about 20% ol the le 1999 Policy as capital in Agreement, we would be per the tenure as payable towards establishing or settmg up of celljilar business. 'By the lime 1999 Policy was implemented in the case of the respondentsassessees, the' cellular telephone business had alread}' commenced and was in operation. The 1999 Policy had the eflect of extending period of licence from 10 years to 20 years, but from the eflective date. The view, we have taken, effec license fee paid in the initial first four nature i.e. the expenditure incurred to business, whereas the balance expendit basis from 5'^'^ 3'ear onwards is treated a and operate cellular telephone business. ively means that the entire • /ears is treated as capital in establish cellular telephone Lire payable on year to year revenue expenditure to run 5S two Judgments relied upon

46. Plowever, we'would like to discu by Huthison Essar Pvt. Ltd. in support of their contention that the Page 42 ol'-tO variable fee cA'en prior to. S 1999 should be treated as revenue expenditure. As noted above\»ithis was the 4 yeai and the eontention of the assessee is that in this year even as per the 1994' agreement, payment had to be made on revenue sharing basis subject to the minimum guarantee. Learned counsel for the assessee had lelied upon CIT vs, Sharda Motors Industry £M.'(supra). In the said case reference was made to J.K. Synthetics Ltd. (supra) to hold that no substantial question of law arises. The Revenue had relied upon Southern Switch GearLtd. vs. CIT (1998) 2321FR359 (SC), but the said judgment was distinguished on the ground that lump-sum royalty was paid and 25% thereof was disallowed by the tribunal on the ground that it was capital payment. In Sharda Motor Industries Ltd. (supra), royalty was to be paid on quantity of goods produced calculated per piece. However, this does not appear to.be sole basis • why the-payment made was treated as revenue expenditure. The court had relied upon other facts which are noticed in paragraph 3 of the same judgment i.e. the payment Avas made for running business. The question of apportionment and payment was not made to establish business. In CIT 'vs. Modi Revlon (P.) Ltd, (2012) 26 Taxmann.com 133 (Delhi), a Division Bench of this High Court observed that the tests evolved over the period have disapproved the applicabilit)^ of the 'once and for all' payment and more structured • approach which would take into account several factors like the licence tenure; whether licence created flirther rights; whether theie was restriction for use of confidential information; whether benefits were transferred once and for all; whether after expiry ol the licence, plans and drawings were to be returned, etc. A.s held and obseived above, it is nature and object for which the payment is made which Page 43 oT4(1 determines the character of payment. In the said case, it was observed that there Avas nothing to show or to suggest vesting of know-how in the assessee and therefore, the assessee did not derive any enduring benefit. Thus, the royalty payment- was held to be revenue in nature.

47. hi-view ofthe aforesaid findings, the substantial queslion mentioned above in itemNos.l to 9 is answered in thefoiloAving manner:.

(i) The expenditure incurred towards hcence fee is partly revenue and partly capital. Licence fee payable upto 31'' July, 1999 should be treated as capital expenditure and licence fee on revenue sharing basis after August, 1999 should be treated as revenue expenditure.

(ii) Capital expenditure will qualify lor deduction as- pei Section

48. The appeal ITA No. 417/2013 by the Revenue in the case of Hutchison Essar Pvt. Ltd., pertains to the assessment year 1999-2000 I.e. year ending 31^' March, 1999. It is for the period prior to the period 31®^ July, 1999. As per the discussion above, the licence fee payable on or before 31'' July, 1999 should be treated as capital expenditure and the licence fee payablethereafter should be treated as revenue expenditure. In view of the aforesaid position, the question of law admitted for hearing in this appeal as recorded in the order dated 21'' August, 2013, has to be ansAvered in favour oi the revenue and against therespondent assessee.

49. In ITA Nos.893/2010 and 1333/2010, an additional issue arises for consideration. This additional issue relates to interest on.delayed payment of license fee ajid whether the same was capital or revenue Page 44 ol'46 expenditure. By order dated 18"' September, 2012, Ihe following substantial question of law was admitted for hearing and disposal:- "Whether the Tribunal fall into error in holding that the interest on tlie delayed payment of license fee also partook of the same nature as license fee. and was deductible as revenue expenditure?" 50, We are inclined to pass an order of remand on this question as we find that the facts on the said aspect are not lucid and clear. In the assessment-year 2000-01, the assessment year subject matlers ol ITA 893/2010 and 1333/2010 in the case of Bharti Cellular Ltd, and Bharti Telenet Ltd. now ImoAvn as Bharti Infotel Ltd., the assessee had paid interest of P.s.1.75 crores and Rs.2.24 crores to the Department of Telecommunication tor delayed payment ol license fee. The Assessing Officer disalloAved the.said payments observing that these were on capital account. The assessment order records Ihcit no details had been furnished and the expenses pertained to prioi" period. The payment was considered to be capital in nature because the license fee Avas also capital expenditure.

51. Commissioner (Appeals) in the case of Bharti Cellular Ltd. (ITA 893/2010) held that interest paid Avas capital expenditure because license fee itselfwas capital in nature. The said opinion was folloAved by Commissioner (Appeals) in the case of Bharti Telenet Ltd., now laioAvn as Bharti Infotel Ltd. The answer to the question would depend upon the Ending whether payment related to license fee payable period prior to 31'^^ July, 1999 or was lor the subsequent period. If interest paid was in respect of license fee ]iayable lor Ihe period prior to 31^^ July, 1999, it will have to be capitalised. Similarly, ifthe interest was payable on license fee for the period post l'a.!,e45yl'40 rrA 1336/201(1 & conn, oases. 0,1^^ July, 1999, it should be treated as revenue in nature/character. The contention that itwas aprior period expense does not appeal to us and has to be rejected, as the interest was paid during/the year in question.

52. Learned counsel for the assessees has submitted that there cannot be, any factual dispute that this interest was paid to the Department ofTelecommunication on delayed payment oi: license fee under the 1999 pohcy and not on account of license fee payable lor period prior to July, 1999. We cannot from the fcicts on record, decipher the exact details as this aspect has not been examined by the tribunal. The tribunal has held that interest paid was revenue in nature because the license fee payable itselt was revenue in nature, irrespective of fee payable prior to 31-^^' July, 1999. We have held to the contrary. The said question of law, therefore, is answered in favour of the Revenue and against the respondent-assessee but with an order of remand to decide the controversy afresh keeping in view the observations made above.

53. The appeals are accordingly disposed of. In the tacts and circumstances, there will be no orders as to costs.