DCIT, C-1(1)(1), BENGALURU vs. M/S. BANGALORE INTERNATIONAL AIRPORT LIMITED, BENGALURU

The description of the list of items submitted in the additional evidence shows that expenditure is incurred towards ‘windows’, ‘Core call’, and ‘Auto cad’ which according to the ld AR have a very short span of life and requires periodic renewal and upgradation by payment of license fee. We notice that the jurisdictional High Court decision in the case of IBM India Ltd. (supra) while considering similar issue held that – “10. The Tribunal, on consideration of the material on record and the rival contentions held, when the expenditure is made not only once and for all but also with a view to bringing into existence an asset or an advantage for the enduring benefit, the same can be properly classified as capital expenditure. At the same time, even though the expenses are once and for all and may give an advantage for enduring benefit but is not with a view to bringing into existence any asset, the same cannot be always classified as capital expenditure. The test to be applied is, is it a part of the company's working expenses or is it expenditure laid out as a part of the process of profit earning. Is it on the capital layout or is it an expenditure necessary for acquisition of property or of rights of a permanent character, possession of which is condition on carrying on trade at all. The assessee in the course of its business acquired certain application software. The amount is paid for application of software and not system software. The application software enables the assessee to carry out his business operation efficiently and smoothly. However, such software itself does not work on stand alone basis. The same has to be fitted to a computer system to work. Such software enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself. Thus, for payment of such application software, though there is an enduring benefit, it does not result into acquisition of any capital asset. The same merely enhances the productivity or efficiency and, hence, to be treated as revenue expenditure. In fact, this court had an occasion to consider whether the software expenses is allowable as revenue expenses or not and held, when the life of a computer or software is less than two years and as such, the right to use it for a limited period, the fee paid for acquisition of the said right is allowable as revenue expenditure and these softwares if they are licensed for a particular period, for utilizing the same for .

The third substantial question of law relates to the computation of the income under the provisions of section 115JA of the Act.

The case of the assessee is that, while computing, within the meaning of section 115JA, the provision made for doubtful debts should not be added as it does not amount to provision made for meeting liabilities other than ascertained liabilities within the meaning of section 115JA(ii). The assessee in its profit and loss account depicted a sum of Rs. 30,45,96,133 as provision for bad and doubtful debts. The Assessing Officer held that the provision is for unascertained liabilities. Since it was merely a provision for unascertained liabilities and as per clause (c) of section 115JA(ii), the same cannot be reduced while computing the "book profit" under section 115JA of the Act. The said view was accepted by the first appellate authority. However, the Tribunal held that the amount being provision made for bad and doubtful debts cannot be considered as provision for meeting any liability, which is not ascertained liabilities and, hence, "book profit" is not to be increased for such amount provided for. This court had an occasion to consider this question in the case of CIT v. Weizmann Homes Ltd. in I. T. A. No. 918/2006 and connected matters decided on March 4, 2013-since reported in [2013] 357 ITR 74 (Karn.) where it was held, if the total income of the company as computed under the provisions of this Act is less than 30 per cent. of book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to 30 per cent. of such book profit. The Explanation to the section states for the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (2) as increased by the amount mentioned in the Explanation. One such amount which we are concerned is in sub-clause (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities. By the Finance (No. 2) Act of 2009, with effect from April 1, 1998, the present clause (g) has been substituted by including the amount or amounts set aside as provision for diminution in the value of any asset. Therefore, in the light of the aforesaid judgment, the finding recorded by the Tribunal cannot be sustained. The said amount is to be added to the book profit and in that view of the matter, the third substantial question of law is answered in favour of the Revenue and against the assessee.”

We notice that the Hon’ble High Court in this case has held that even if the application has an enduring benefit, it does not result in acquisition of capital asset.

The decision relied on by the ld. DR in Toyota Kirloskar Motor (P) Ltd. (supra) was rendered based on the specific facts in that case where the software viz., ‘lotus notes’ had shelf life of less than two years based on which the Hon’ble High Court held that it is revenue in nature. The decision cannot be applied generally to state that any software having a shelf life of more than two years is capital in nature since the decision in Toyota Kirloskar Motor (P) Ltd. (supra) was with respect to a particular software and that the nature of software whether it is a system software or application software needs to be analysed to decide the treatment under the Act.

In view of the above discussion, we remit the issue back to the AO to verify the facts afresh after considering the breakup of the software expenses submitted as additional evidence filed by the assessee and decide the issue after taking into consideration the ratio laid down by the jurisdictional High Court in the case of IBM India Ltd. (supra). Needless to say that assessee shall be given reasonable opportunity of being heard. This ground of the assessee is allowed for statistical purposes.

In the result, the appeal filed by the revenue is allowed for statistical purposes.

The first objection of the assessee is that the learned CIT(A) erred in disallowing concession fee payable of ₹20,32,32,000 by invoking the provisions of section 43B of the Act.

The learned counsel before us submitted that the same issue arose in A.Y. 2020–21 in CO No. 25/Bang/2024 (in ITA No. 1109/Bang/2024). In that case, the Tribunal, by order dated 16.04.2025, allowed the claim in favour of the assessee. The Tribunal held that concession fee payable to the Government of India under agreement dated 05.07.2004 is allowable as deduction without being restricted by the provisions of section 43B of the Act. The ld. counsel therefore prayed for similar relief.

Per contra, the learned DR supported the orders of the authorities below but could not rebut the submissions of the assessee.

We heard both sides and perused the materials available on record. We note that the Tribunal in assessee’s own case for A.Y. 2020– 21 has already decided this issue in favour of the assessee. The relevant extract of the order of the ITAT is reproduced herein below:

The relevant facts are that the assessee entered into a concession agreement with Ministry of Civil Aviation of India dated 05th July 2004. As per the said agreement the assessee was granted exclusive right and privilege by Government of India to carry out the development, design, financing, construction, commissioning, maintenance, operation and management of Bangalore International Airport. In lieu of granting of such exclusive right and privilege, the assessee was required to pay a concession fee @ 4% of gross revenue to the Government of India. Furthermore, the concession fee for the first 10 financial years was payable in 20 equal half-yearly installments starting from 11th year after commencement of the operation.

Therefore, the assessee made provision on account of concession fees payable for each year starting from A.Y. 2010-11 and accordingly made provision in the year under consideration at R. 53.55 crores. The provision in .

The AO disallowed the claim of the assessee by invoking the provision of section 43B of the Act. The AO held that the concession fee payable to the Government is covered by the provision of section 43B of the Act which states any sum payable by way of tax, duty, cess or fee, by whatever name called shall be allowed as deduction on actual payment basis. The assessee is required to pay the impugned concession fee in certain installments starting from 11th year, hence the same cannot be allowed as deduction. Furthermore, the liability created in the books only represents the provision and provision created for future liability cannot be allowed as expenses. Thus, the AO disallowed the claim of the assessee for Rs. 53.55 crores and added to the total income.

The aggrieved assessee preferred an appeal before the learned CIT(A) 56. The learned CIT(A) following the order of his predecessor for A.Y. 2017-18 held that the provision for concession fee for Rs. 53.55 crores shall not be allowed as deduction as per section 43B of the Act. However, the assessee will get the benefit of Rs. 88,54,47,988/- on actual payment basis which has been paid during the year under consideration.

Being aggrieved the order of the learned CIT(A), the assessee is before us through cross objection.

The learned AR before us submitted that, as per the terms of the concession agreement, the fee was paid for the rights and privileges under the concession agreement and not in the nature of a tax or duty as envisaged under section 43B of the Act. During the relevant assessment year, the assessee paid ₹53.55 crores towards concession fees. The learned AR reiterated that the concession fee was paid in exchange for the exclusive grant to carry out the development, design, construction, operation, and management of the airport, and hence does not fall under the nature of tax, duty, or levy as contemplated in section 43B of the Act. The AR further relied on a precedent in the assessee’s own case for AY 2013- 14, where the Tribunal had held that the concession fee was not in the nature of a levy falling under section 43B of the Act and thus should be allowed as a deduction. Therefore, it was submitted that the disallowance made by the AO was not justified and the entire amount of concession fee claimed as expenditure should be allowed as a deduction.

On the other hand, the learned DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. The primary issue under consideration pertains to the disallowance of concession fee of ₹53.55 crores claimed by the assessee as an expenditure on accrual basis, which was disallowed by the AO by invoking the provisions of section 43B of the Act. The assessee contends that the concession fee is not covered under the purview of section 43B of the Act, and hence the deduction is allowable on accrual basis.

It is an undisputed fact that the assessee had entered into a concession agreement with the Ministry of Civil Aviation dated 5th July 2004, under which it was granted the exclusive right to design, develop, finance, construct, operate, and maintain the Bangalore International Airport. In consideration of these rights, the assessee was obligated to pay a concession fee to the Government of India at 4% of its gross revenue. As per the agreement, such concession fee was payable in 20 equal half-yearly instalments starting from the 11th year of commencement of operations. Accordingly, the assessee made a provision of ₹53.55 crores during the year under consideration and also made an actual payment of ₹88.54 crores, as the 11-year deferment period had concluded.

The AO invoked section 43B of the Act, which mandates that any sum payable by way of tax, duty, cess, or fee shall be allowed as a deduction only on actual payment basis. Relying on this provision, the AO disallowed the provision amount on the ground that it represented a future liability and had not been actually paid during the year. This view was upheld by the learned CIT(A), who followed the order of his predecessor for Assessment Year 2017- 18. 63. However, we note that in the assessee’s own case for Assessment Years 2010-11 and 2012-13, the learned CIT(A) had held that concession fee is not covered under the provisions of section 43B of the Act. Importantly, the Revenue did not prefer any appeal against those orders, thereby accepting the position taken by the CIT(A). Furthermore, in a subsequent decision of the Tribunal in the assessee’s own case for Assessment Year 2013-14 in it was categorically held that the concession fee payable by the assessee does not fall within the ambit of section 43B of the Act, and the deduction was therefore allowable on accrual basis.

Considering the above judicial precedents in the assessee’s own case and the fact that the nature of the concession fee and the agreement terms remain unchanged, we find that the issue is squarely covered in favour of the assessee. Respectfully following the earlier orders of the Tribunal, we hold that the claim made by the assessee for ₹53.55 crores towards concession fee is allowable as deduction on accrual basis, and the same does not attract the restriction under section 43B of the Act.

However, since the matter also involves actual payment of ₹88.54, therefore a verification of the actual quantum of expenditure pertaining to the year under consideration is required to be made. Therefore, we direct the AO to verify the .

Per contra, the learned DR did not object to setting aside the matter for verification and fresh adjudication as per law.

We have carefully considered the rival contentions and perused the record. It is a settled position in law that foreign exchange fluctuation gains or losses are not contingent in nature, but arise from . existing obligations as on the balance sheet date. The Hon’ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. (179 Taxman 326) has held that loss on account of foreign exchange fluctuation in respect of monetary items as on the balance sheet date is an allowable expenditure.

In the result, the CO filed by the assessee is partly allowed for statistical purposes.

In the combined result, the revenue’s appeal is allowed for statistical purposes whereas the CO filed by the assessee is partly allowed for statistical purposes.