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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
(PAN : AAACH9041D) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Sanjiv Sapra, CA REVENUE BY : Md. Gayasuddin Ansari, Sr. DR Date of Hearing : 19.07.2022 Date of Order : 11.08.2022
ORDER
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal by the assessee is directed against the order of the ld. CIT (A)-12, New Delhi dated 27.09.2019 pertaining to assessment year 2013-14.
The grounds of appeal raised by the assessee read as under :-
“1. That the Ld. CIT (A) has erred on facts and in law in confirming the disallowance of Rs.2,51,74,016/- on account of interest on license fee expenditure as claimed during the year under consideration and at any rate, without prejudice, the disallowance of such interest is very excessive.
./2019 2. That the interest of Rs.2,51,74,016/- on license fee expenditure having got ascertained/crystallized during the year under consideration, the authorities below had erred in consideration such interest as pertaining to earlier years.
3. That without prejudice to Ground no.1 and 2 above, inertest of Rs.2,51,74,016/- on license fee expenditure may be directed to be allowed in the respective years to which its pertains.”
Brief facts of the case are that Assessee company is engaged in the business of FM Radio Broadcasting in the territory of Kolkata. On the verification of the details, the Assessing Officer found that the Assessee company made the payment of interest of Rs.10,23,09,014/- to the Ministry of Information & Broadcasting on account of license fee. The interest amounting to Rs.15,41,942/- related to non-payment of license fee for FY 2012-13 and interest amounting to Rs.10,07,67,072/- related to the non-payment of license fee for earlier years. The Assessing Officer asked the Assessee to explain as to why interest amounting to Rs.10,07,67,072/- relating to earlier years be not disallowed. In response it was submitted by the Assessee company that there were certain disputes relating to license fee and particularly the interest charged by Ministry of Information & Broadcasting on such license fee. As per their calculations, license fee payable till 31st March, 2013 worked out to Rs.7,08,22,016/-. Total amount payable including the interest worked out to Rs.10,23,09,014/-. The Assessee deposited Rs.18 Crore in pursuance as under:
Particulars Amount Annual License Fee (Till March 2013) Rs.2,37,22,016/- One Time Entry Fees (OTEF) Migration Fees Rs.4,71,00,000/- A Rs.7,08,22,016/- Interest on License Fees (Till March 2013) Rs.2,51,74,016/- Interest on Migration Fees (Till March 20l3) Rs.7,71,34,998/- B Rs.10,23,09,014/- A+B Rs.17,31,31,030/- Advance License Fees C Rs.68,68,970/- A + B + C Rs.18,00,00,000/-
4. On the basis of the decision of the Hon'ble Calcutta High Court, the Appellant company made provision for the payment of interest amounting to Rs.2,51,74,016/- as revenue expenditure.
5. The Assessing Officer observed that interest amounting to Rs.2,51,74,016/- related to non-payment of license fee of earlier years.
The Hon'ble Calcutta High Court directed the Assessee company to deposit the license fee alongwith the interest thereon @ 18% with Ministry of Information & Broadcasting. The Assessee is using mercantile system of accounting. Hence, the interest expenses for earlier years would be allowed in respective years. In view of these observations, the Assessing Officer disallowed interest amounting to Rs.2,51,74,016/-.
6. Ld. CIT (A) upon assessee’s appeal noted following submissions :-
“In the written submission dated 2151 January, 2019, the Appellant has, inter alia, stated that interest of Rs.2,51,74,016/- ./2019 as charged till 31.03.2013 on delayed payment of Annual License Fee was claimed as a deductible revenue expenditure while interest of Rs.7,71,34,889/- charged till 31.03.2013 on delayed payment of one time entry / migration fee was capitalized as part of intangible asset and depreciation thereon amounting to Rs.1,92,83,722/- was claimed. The Annual License Fee dues as applicable on fixed fee basis till 31.03.2005 have been debited to the accounts relating to the relevant periods and were claimed as deductible revenue expenditure. The same has been allowed as expenditure during the relevant assessment proceedings. Phase 2 became applicable w.e.f. 01.04.2005. The Appellant capitalized OTEF 1 Migration Fee as payable to its fixed assets as part of intangible asset in the return for A Y 2006-07. The department has always accepted such Annual License Fee expenditure as revenue expenditure in the past. The payment of interest relating to license fee was always disputed by the Assessee because the delay was not attributable to the Appellant company. The crystallization of interest amount on the license fee took place during the year under consideration when the MIB rejected the request for waiver of interest or reduction thereof. The Appellant on 21.03.2013 for the first time accepted to pay entire interest as demanded by MIB. It is submitted that no part of interest expenditure as accrued and claimed as revenue expenditure for A Y 2011-14 can he considered as prior period in nature. The Appellant has referred to Accounting Standard 5 and stated that term prior period items does not include other adjustments necessitated by circumstances, which though related to prior periods, are determined in the current period.”
7. However, ld. CIT (A) was not convinced. He held as under :-
“ I have considered the facts of the case and submission of the Appellant. The facts in this case are clear that the Ministry of Information & Broadcasting always insistence the payment of interest on the delayed payment of license fee. It was only the Assessee company which was opposing the payment of interest. In view of these facts, the decision of Hon'ble Madras High Court in the case of CIT vs. Anna Transport Corporation Ltd., relied on by the Appellant company is distinguishable on the facts. In the cited case, the Assessee company could not make a provision unless the liability had accrued. So far the ./2019 Appellant's case is concerned the liability was ascertained. It was only the Assessee which was disputing the payment of interest. Therefore, the interest which was related to the earlier years cannot be allowed for deduction against the revenue receipts pertaining to the year under consideration. Hence, the disallowance made by the Assessing Officer is confirmed. In so far as allowance of interest expenses pertaining to previous years is concerned, the same can be made by the Assessing Officer subject to the time limits.”
Against this order, assessee is in appeal before the ITAT. We have heard both the parties and perused the records.
Ld. counsel of the assessee made following submissions :-
“3. Delay in payment of license fee to MIS occurred due to disputes regarding certain license terms between MIS and the Assessee on account of which the Assessee was not offered to migrate from Phase-1 fixed amount license to Phase -2 revenue sharing license fee regime as made applicable w.e.f. 01/04/2005.
Consequently, during the pendency of such dispute, license fee could not be paid though the Assessee kept providing for annual license fee in its books during the relevant years to which it was applicable whereas one time entry/migration fee (“OTEF") as applicable for migrating to Phase-2 was capitalized on its cut-off date on 01/04/2005 under intangible assets and depreciation thereon was claimed as per IT Rules year after year. Such annual license fee amount as provided for (but not paid on account of disputes) was claimed and allowed as deductible revenue expenditure in each of the respective years to which it pertained in accordance with mercantile system of accounting. Similarly, depreciation on OTEF was allowed in the respective years.
Assessee did not provide for interest as applicable in its books on delay in making payment of annual license fee and OTEF since it disputed the charging of such interest on the ./2019 ground that the delay was not attributable to it and was entirely caused due to unjustified actions of MIB.
After several years of dispute and negotiations, crystallization/ascertainment and quantification of interest amount of Rs.2,51,74,016 on annual license fee including for previous years had taken place during the year under consideration as is evident from the following: • MIB communicated its willingness vide its letter dated 29/11/2012 (copy placed at page 62-63 of PB) to permit the Assessee to migrate to Phase-2 license regime by charging interest @8% p.a. upto FY 2008-09 and thereafter @18% p.a. • Appellant's letter dated 26/12/2012 (copy placed at pages 64-66 of PB) as per which it disputed the interest as charged @18% p.a. and requested for settling the interest for the entire period @8% p.a. • MIB vide its letter dated 26/02/2013 (copy placed at pages 67-69 of PB) withdrew its above offer to migrate the Assessee to Phase-2 and instead raised a demand for higher license fee as per Phase-1 regime. • Assessee vide its letter dated 21/03/2013 filed before MIB (copy placed at pages 70-74 of PB) offered for the first time to pay interest on license fee @8% p.a. upto FY 2008-09 and thereafter @18% p.a. provided it is allowed to migrate to Phase- 2 as per MIB's above letter dated 29/11/2012 - kindly see para 1.14 at page 73. • Even though MIB vide its letter dated 04/04/2013 (copy placed at pages 75-76 of PB) rejected the above offer of the Appellant and continued to consider the Assessee under Phase -1 license regime but Calcutta High Court vide its order dated 26/04/2013 (copy placed at pages 48- 51 of PB) vacated such action of MIB and extended the license for 6 months subject to payment of RS.18 Cr to MIB. It was further clarified by the Court that during extended period of license, MIB shall charge license fee as per Phase-2 regime unless directed otherwise by TDSAT. • In accordance with the directions of Calcutta High Court, the amount of Rs.18 Cr was deposited on 10/05/2013 before M IB vide letter dated 22/09/20 15 (copy placed at ./2019 pages 55-58 of PB) (kindly see page 53). From the breakup of Rs. 18 Cr as also reproduced at page 2 in the assessment order, it would be observed that interest on annual license fee for the period till March, 2013 (including for previous years) was Rs.2,51,74,016 and interest on migration fee/OTEF was Rs.7,71,34,998. • TDSAT vide its order dated 05/03/2015 (copy placed at pages 46-47 of PB) confirmed the fact that the Assessee was entitled to migrate to Phase-2 license regime as per the terms and conditions of MIB's letter dated 29/11/2012 which contained the above year wise interest calculation reflected at page 54 of PB and reproduced at page 3 of the assessment order.
Hence, ascertainment/crystallization and quantification of interest on delayed payment of license fee got settled as per the accepted terms and conditions of MIB's letter dated 29/11/2012 which falls during the year under consideration. It is well settled that the disputed liability even though pertaining to earlier years crystalizes in the year when either the Court of law decides and/or assessee accepts to pay. In the instant case, the Assessee had always disputed the exorbitant charge of interest and for the first time accepted to pay the same vide letter dated 21/02/2013 as filed before MIB in accordance with terms, conditions and interest charged as per MIB's letter dated 29/11/2012, which got finally confirmed by the Court.
8. Moreover, interest of Rs.7,71 ,34,889 on delayed payment of OTEF for migrating from Phase-1 to Phase-2 licence regime was also crystalized during the year under similar circumstances alongwith interest of Rs.2,51,74,016 on delayed payment of annual license fee in accordance with interest calculations vide MIS's letter dated 29/11/2012. Such interest of Rs.7,71,34,889 was allowed to be capitalized during the year even though it pertained to OTEF as capitalized in prior FY 2005-06 (cut-off date being 01/04/2005) and depreciation as claimed on such capitalized interest has been allowed during the year. Hence, interest of Rs.2,51,74,016 on annual license fee as crystalized and quantified as per MIB's letter dated 29/11/2012 on the same basis as interest on OTEF also deserves to be allowed during the year under consideration for which reliance is placed on the following case laws:
243 ITR 35, CIT vs. Anna Transport Corporation Ltd. (Madras HC) 213 ITR 523, Surashtra Cement and Chemical Industries Ltd. vs. CIT (Gujarat HC) 153 ITD 111, Hindustan Zinc Ltd. vs. Addl CIT (Jaipur Trib) (TM) ITAT Chandigarh Bench judgment dated 20101/2022 in the case of MIs Kamla Retail Ltd. (Now known as Ethos Limited vs. Addl CIT (ITA No. 1023/Chd/2019) - refer to findings recorded at para 7 of such judgment.
9. Commercial expediency of such interest expenditure claim of Rs.2,51,74,016 being in the nature of business expenditure is not in dispute since both AO and CIT(A) are of the view that such interest expenditure pertaining to previous years can be claimed and allowed in those respective years. Since the issue is tax neutral as the interest expense is to be allowed either entirely in current year or partly in previous years, therefore, there is no loss to the Revenue. From this angle also, disallowance of interest expenditure of Rs.2,51,74,016 deserves to be deleted for which reliance is placed on the following case laws: . 358 ITR 205, CIT vs. Excel Industries Ltd. and Ors (Supreme Court) 334 ITR 102, CIT vs. Modipon Ltd. (Jurisdictional Delhi H.C.).”
Against the above order, assessee is in appeal before us. There is not an iota of doubt that there was a dispute which later traveled to the Hon’ble Calcutta High Court and pursuant to Hon’ble High Court order, certain amounts were deposited. Assessee’s plea that the liability crystallized only upon the order by Hon’ble High Court in the dispute has been rejected by the Revenue authorities by holding that assessee should made during the year cannot be allowed.
We fail to understand how the Revenue authorities are expecting that the assessee should make provision for the amount of payment in its accounts when dispute regarding the same is going on and the matter has even reached the Hon’ble High Court. No prudent person would accept the liability in its books and at the same time, dispute the same in court of law. Such expectation by the Revenue authorities is quite bizarre to say the least.
Hence, in our considered opinion, the view that the liability got crystallized upon Hon’ble High Court order is convincing and the authorities below have erred in rejected the same.
Further, the issue has rightly been claimed to be tax neutral on the touchstone of following case laws :-
358 ITR 205, CIT vs. Excel Industries Ltd. and Ors (i) (Supreme Court)
(ii) 334 ITR 102, CIT vs. Modipon Ltd. (Jurisdictional Delhi H.C.).
The Revenue authorities are clear that the claim is not bogus but the issue is only of spreading the same in different years, the above case laws duly support the case of the assessee that the issue becomes revenue neutral. the assessee. 16. In the result, the appeal by the assessee stands allowed. Order pronounced in the open court on this 11th day of August, 2022.