ITAT rules on licence fees under the Income Tax Act

ITAT rules on licence fees under the Income Tax Act

The fee paid for the long-term right to use the telecommunication spectrum amounts to capital expenditure

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the license fee paid for the long-term right to use the telecommunication spectrum amounts to capital expenditure under the Income Tax (IT) Act, 1961.

The assessing officer (AO), while considering the return filed by the assessee-company, held that by paying the license fee, the assessee had the right to use the telecommunication spectrum. And the license acquired should be treated as an intangible asset. Therefore, he was entitled to claim the depreciation on it. However, he had claimed it as revenue expenditure.

The Commissioner of Income Tax (Appeals) directed that the annual payment made to authority (the government) for business operations of the assessee (a businessman) was revenue in nature. It was allowed under the IT Act.

Confirming the order of the first appellate authority, the tribunal bench comprising ITAT president G S Pannu and judicial member Kul Bharat said, "The IT Commissioner ruled on the fact that the revenue share fee was for the operation and usage of the right given under the license. It had not resulted in the creation of the capital asset or any other advantage."

"This finding was not rebutted by the revenue department. Moreover, the department did not bring to our notice any other binding precedent on this point," the bench added.