The Pr. Commissioner of Income Tax-3 v. Digital Radio (Delhi) Broadcasting Ltd.

1. These three appeals by the Revenue under Section 260A of the Income Tax Act, 1961 ('Act') are directed against the common order dated 24"' November 2015 passed by the Income Tax Appellate Tribunal ('ITAT') in ITA Nos. 1720, 1721 and 4364/Del/2011 for the Assessment Year ('AY') 2006-07.

2. The three Respondents are the Delhi, Mumbai and Kolkata companies of the same group, i.e.. Digital Radio Broadcasting Limited. For easy reference facts pertaining to the Respondent in ITANo. 432 of 2016 i.e. Digital Radio (Delhi) Broadcasting Limited are discussed.

3. The Respondent was awarded licence interms ofanAgreement dated 27^*^ October 2000 with the Government of India, Ministry of Information and Broadcasting ('I&B') for FM radio broadcasting. The Respondent was to pay a fixed license fee for each year with anescalation clause for increasing the fee by 15% every year for a period of 10 years. The licence period was for 10 years commencing from the date of issue of wireless operational ITA Nos. 432, 433 and434/2016 Page 2of[7] a ^ ' license, on 29"^ April 2003 by WPC Wing of Department of Telecommunication, Government of India.

4. It is stated that the Respondent commenced FM broadcasting with effect from 29"^ April 2003, i.e., AY 2004-05. It claimed deduction under Section 35ABB ofthe Act of 1/10^*^ oflicense fee paid for the first year oflicence. This was allowed by the Assessing Officer ('AO') for the AY 2004-05 by the assessment order dated 9"^ November 2006 under Section 143 (3) ofthe Act. Likewise forthe AY 2005-06, the Respondent claimed deduction under Section 35ABB of the Act inthe sum equivalent to licence fee paid for the first year along with 1/9"" oflicence fee paid for the second year. This too was allowed by the Revenue.

5. Anew policy was announced by the I&B Ministry on 13"" July 2005. By a letter dated December 2005, the I&B Ministr>' allowed the FM broadcasters operating under Phase-I Policy regime, the following options: (a) Migrate to Phase-II policy regime on revenue sharing basis with effect from 1®' April 2005 for a fresh term of 10 years provided the broadcasters had operationalised their FM channels and paid offall license fees dues ofPhase-I license upto 4^'' January 2006. (b) Continue under Phase-I policy regime,

(c) Surrender Phase-I license and exit.

6. The Respondent in each ofthese appeals opted to migrate from Phased to Phase-II policy regime and accordingly, paid the remaining, fixed license ITA Nos. 432, 433 and434/2016 p„ge[3] 7 fees payable under Phase-I within the stipulated time during tne year under consideration, i.e., AY 2006-07 •since it was a pre-condition of the I&B Ministry. Since the Respondent had migrated from Phase-I to Phase-II, Phase-I license had come to an end. Thus, the Respondent claimed deduction of Rs. 12,65,82,440 under Section 35ABB of the Act for the remaining license fee payable under Phase-I.

7. However, the AO disallowed the above expenditure. The AO construed the expenditure incurred on the payment of the licence fee to be capital expenditure. The AO treated the loss incurred as a result of the migration from Phase-I as acapital loss and not revenue expenditure'as claimed by the Assessee. Consequently, a loss ofRs. 12,65,82,440 incurred by the Assessee by migrating to Phase-II revenue sharing regime was treated as acapital loss and was disallowed as a revenue expenditure.

8. The Respondent then appealed to the Commissioner of Income Tax (Appeals) ['CIT (A)']. By an order dated 2"'' December 2010, the CIT (A) partly allowed the Respondent/Assessee's appeal. The CIT (A) held that the remaining capital expenditure ofRs. 12,65,82,440 with regard to licence fee paid under Phase-I was not allowable in full during the year under consideration but proportionately over 10 years licence term as applicable for Phase-II licence to which the Respondent had migrated. Accordingly, the CIT (A) allowed Rs. 1,26,58,244 under Section 35ABB of the Act being 1/10 ofRs. 12,65,82,440 i.e. the remaining capital expenditure with regard to license fee paid under Phase-I.

9. Against the above order ofthe CIT (A), the Revenue filed appeals before ITA Nos. 432, 433 and434/2016 ^ 7 the ITAT in respect of each ofthe Respondents for the AY 2Q06-07. Crossappeals were also filed by the Assessee. All six appeals were dismissed by the common impugned order dated 24^^ November 2015. The ITAT concurred with the CIT (A) that the remaining expenditure on account of fixed license fee under Phase-I became part and parcel of all the paymerits under Phase-II. The Phase-II licence was granted by way of extension and was not independent under Phase-I. Therefore, the ITAT also allowed the remaining capital expenditure of Rs. 12,65,82,440 spread overthe remaining 10 year life of the license granted under Phase-II resulting in allowance of I/IO"' expenditure ofRs. 1,26,58,244 during the year under consideration.

10. The following questions raised by the Revenue in ITA 432 of 2016 arise in the other two appeals as well: "2.[1] M\niether the learned ITAT/CIT (A) were right inlaw inallowing deduction of Rs, 1,26,58,244 towards the license fee ofphase-I under Section 35ABB ofthe Income Tax Act, 1961 despite the fact that the Phase-I licensewas no longerin force? 2.[2] \yhether learned ITATerredin holding that licence fee incurred in Phase-I regime becomes part and parcel of all the payments made for Phase-II license regime and available for amortization for Phase-II license of 10 years? 2.[3] Whether learned ITAT erred in allowing the authorization of licence fee expenses of Phase Lregime in Phase II regime as not allowed under Section 35ABB of the Income Tax Act, 1961?" ITA Nos. 432, 433 and434/2016 Page[5] of 7 f 1 \V 2.[4] Whether in law and in facts, learned ITAT/CIT (A) were correct in deciding the Assessing Officer to verify and allow carry forward business loss/unabsorbed depreciation in as such as during the year under consideration the entire shareholding was transferred from one company to another?

11. Having heard learned counsel for the parties, the Court is of the view that no substantial question of law arises on any of the above issues. As far as the questions 2.[1] to 2.[3] are concerned, the purport of the said questions raised by the Revenue are that Phase-II licence regime was not in continuation of Phase-I when in fact it was. It is on this basis that the amount equivalent to I/IO"^ of the total capital expenditure was alldVed proportionately over 10 year period in accordance with Section 35ABB (1) of the Act. Ij; provides that any capital expenditure actually incurred by the Assessee on the acquisition of any right to operate telecom services is to be allowed as a deduction in equal instalment over the period for which the licence remains in force. The concurrent findings of the ITAT and CIT (A) in this regard are not shown to be perverse or contrary to the express terms of those licenses. Consequently, the Courtdeclines to frame the questions as posed by the Revenue at 2.[1] to 2.[3] above.

12. As far as question No. 2.[4] is concerned, it is pointed out.that what the Assessee claimed was.brought forward unabsorbed depreciation in terms of Section 32 (2) of the Act and not unabsorbed brought forward business loss. The CIT (A) directed the AO to verify from the Respondent's record and only permit claim relating to unabsorbed brought forward depreciation. This ITANos. 432, 433 and 434/2016 o \ is not prohibited under Section 79 ofthe Act even when ther/is achange in • the shareholding of the Respondent. Consequently, the Court is not inclined to frame question 2.[4] as a substantial question of law.

13. The appeals are dismissed. MAY 24, 2017 Rm. • ITA Nos. 432, 433 and 434/2016 S.MURALIDHAR, J p R>SHEK CHANDER>SHEKHAR, J