DCIT, CIRCLE 4(2), NEW DELHI vs. MS BHARTI TELEMEDIA LTD, NEW DELHI

ORDER PER C.N. PRASAD, JM, All these appeals are filed by the assessee as well as revenue for the A.Ys 2016-17, 2020-21 and 2021-22 against different orders of the Ld. CIT(A)/NFAC, Delhi since all these appeals involve common issues, therefore, all of them were heard together and are disposed of by this common order for the sake of convenience.

21. (Assessee’s appeal) 1) That the learned Commissioner of Income tax (Appeals) ["CIT (Appeals)"] erred on facts and in law in confirming the disallowance of variable license fee paid to Ministry of Information and Broadcasting (MIB) under section 35ABB of the Income Tax Act, 1961 ["Act"] which is applicable on companies providing telecommunication services while appellant is engage in providing Direct to Home (DTH) services.

2) The appellant craves leave to add to, alter, amend, or vary the above grounds of appeal at or before the time of hearing. 4966/Del/2024 A.Y. 2020-21 (Revenue’s appeal)

1. Whether Ld. CIT(A) has erred in deleting the disallowance of provision for interest on outstanding license fee of Rs. 119,01,19,717/- for AY 2020-21 and mentioning it as ascertained liability. Rs. 404640704.

2. Without prejudice to the G.O.A. at S., No. 1 on provision for interest on outstanding license fee whether Ld. CIT(A) has grossly erred in considering interest on license fee (Provision) as 2 revenue expense even when the same has come into existence on the basis of license fee which has been considered to be a capital receipt by Hon'ble Supreme Court in the case of VIT vs Bharti Hexacom Ltd. (2023) 155 taxmann.com 322 (sc).

3. Whether Ld. CIT(A) has erred in upholding that the variable license fee paid by the assessee is deductible as revenue expenditure and thereby deleting the addition of Rs. 159,38,43,254/- without considering the fact that it is capital in nature and has to be amortized as per the provision of section 35ABB of the Act.

4. The appellant craves leave to add, alter or amend any/all of the grounds of appeal

before or during the course of the hearing of the appeal.

3. The brief facts of the case are that the assessee had entered into a contract with the Ministry of Information and Broadcasting, Government of India ("MIB") for providing DTH services vide agreement dated 10.09.2007 (pages 168 to 182 of the paperbook) in terms of section 4 of the Indian Telegraph Act, 1885 ('the Telegraph Act') and Indian Wireless Telegraphy Act, 1933. In terms of the said licence agreement as clarified/ amended vide Order No. 8/12/2006-BP&L dated 6th November 2007 issued by MIB (pages 183 to 184 of the paperbook), the licencee (assessee) is required to pay licence fee; the terms related to such licence fee are as under: Page | 3 "ARTICLE-3 "LICENCE FEE 3.1 The Licencee shall pay an initial non-refundable entry fee of Rs.10 crores before the issue of letter of intent to him by Licensor, and, after the issue of the Wireless Operational licence by the Wireless Planning and Coordination (WPC) Wing of the Ministry of Communications, an annual fee equivalent to 10% of its gross revenue in that particular financial year in the manner detailed hereunder. Provided that the annual fee so payable by the licencee shall be paid in advance on a six monthly basis and on account payments made on this basis will be adjusted/reconciled when the annual audited accounts of the Company for that particular financial year are made available at the end of the financial year. 3.1.1 Gross Revenue for this purpose would the gross inflow of cash, receivable or other consideration arising in the course of ordinary activities of the Direct to Home [0TH] enterprise from rendering of services and from the use by others of the enterprise resources yielding rent, interest, dividend, royalties, commissions etc. Gross revenue shall, therefore, be calculated, without deduction of taxes and agency commission, on the basis of billing rates, net of discounts to advertisers. Barter advertising contracts shall also be included in the gross revenues on the basis of relevant billing rates. In the case of licencee providing or receiving goods and service from other companies that are owned or controlled by the owners of the licencee, all such transactions shall be valued at normal commercial rates and included in the profit and toss accounts of the licencee to calculate its gross revenue. 3.1.2 Every licencee shall maintain separate financial accounts for the channel, which shall be audited by the Statutory Auditors. At the end of each financial year, the company shall provide the statement of gross revenue forming part of the final accounts of the licencee as per the format in Form D, duly certified by the Statutory Auditors. It may be noted that the income heads specified in Form D are only indicative and illustrative and the Auditor would include all the relevant heads qualifying for gross revenue whether or not specifically included in the said format In addition, the income from the Related Parties shall have to tally with the Related Parties schedule as per Accounting Standards no.

18. Besides, the company shall disclose the following information at the end of each financial year, duly certified by the Statutory Auditor. i) Total trade and other discounts Page | 4 ii) Total agency commission iii) Total Related party transaction 3.1.3 So as to verify that the Gross Revenue is correctly disclosed to it, the Government of India shall have the right to get the accounts of any licencee audited by CAG or any other professional auditors at its discretion. In case of difference between the Gross Revenue determined by the Statutory Auditors and the Government appointed auditors, the views of the government appointed auditor, subject to opportunity of hearing to the licencee shall prevail and the expenses on such audit shall be borne by the licencee. 3.1A.1 The First payment of Annual licence fee for the financial year (FY) shall be made on the basis of provisional accounts for the FY certified by the Statutory Auditors, within one month of the end of that FY. 3.1A.2 Annual Licence fee for the FY shall be finally determined on the basis of final annual accounts of the FY audited by the Statutory Auditors, which shall not be later than 30th September of the following FY. If the amount so determined is found to be higher than the amount already deposited as per clause 3.1A.1, the difference amount along with simple interest @ 1% per month on the difference for the period of delay calculated from 1st of May of the following FY upto and including the date of such payment shall be paid in one lumpsum within a period of 15 days from the date of finalization of audited accounts, or 15th October of the following FY whichever is earlier. 3.1.A.3 Where the total annual fee deposited as per clause 3.1A.1 is more than the amount determined on the basis of audited accounts of the FY, the difference may at the request of the licencee be adjustable against the annual licence fee due for the following FY. 3.1A.4 In case any amount is to be deposited by the licencee as per provisions of clause 3.1.3 it shall be deposited within 15 days of such determination along with simple interest at the rate of 1% per month for the period from Ist May following the FY for which such determination has been made, upto and including the date of payment.”

-One time non-refundable entry fee of Rs.10 crores prior to issuance of letter of intent from licensor.

- Annual licence fee @ 10% of the gross revenue earned during the period. It may be noted that such annual licence fee is to be paid on the basis of gross revenue as per the prescribed formula stated above (Adjusted Gross Revenue (AGR)]. Further, in terms of the contract, MIB is authorized to scrutinize the audited accounts of the assessee for a specified period to verify if the licence fee deposited by the assessee is in accordance with the formula as prescribed in the agreement and in case there is any difference in the amount so deposited by the assessee and the amount as computed by MIB, the same was payable by the assessee along with simple interest @ 1% per month on the difference for the period of delay.

(a) No payment for the said interest had been made during the year; (b) No provision was created for the interest right from assessment year 2008-09 but only from assessment year 2015-16 when assessee received order for payment of outstanding licence fee from MIB on 19.04.2014; and (c) Issue of quantification of AGR is subject matter of litigation before the Supreme Court and hence the amount of interest payable is not an accrued and ascertained liability.

Decision of the CIT(A):

(i) Re: Amortization of licence fee under section 35ABB The CIT(A) upheld the applicability of section 35ABB of the Act holding that the issue is covered by the decision of the Hon'ble Supreme Court in the batch of cases titled as CIT vs. Bharti Hexacom Ltd.: [2023] 458 ITR 593 (SC) [16-10- 2023]. wherein the case of the assessee for earlier year (AY 2010-11) was tagged [para 69 of CIT(A) order].

The CIT(A) however held that since post expiry of original licence granted for 10 years (expired on 10.09.2017) the licence was periodically extended for period of six months (tabulated above), the licence fee was for the short- extended period and not for 10 years (as alleged by the AO). The assessee placed on record working of amortization of licence fee under section 35ABB of the Act considering licence period of six months taking into account fee for financial years 2018-19 and 2019-20 and computed amount of Rs.323,72,50,000 to be allowed. The CIT(A) however held that no amount in excess of amount charged in books would be allowed and hence restricted/ allowed the claim of Rs.294,80,00,000/- [Page 70 of CIT(A) order).

(ii) Re: Disallowance of provision of interest qua delayed licence fee (a) The obligation of interest payment @ 1% for delay in payment of licence fee was as per the agreement with MIB. (b) While computing licence fee liability, the assessee claims certain deduction in calculating AGR which MIB did not accept, resulting in dispute between the assessee and MIB for quantification of licence fee. (c) The issue was decided by TDSAT in favour of the assessee, relying on earlier order for telecom companies. The dispute in respect of such licence fee computation is now pending before the Apex Court for DTH industry. (d) In case of telecom companies, the issue of computation of AGR has been decided against by the apex Court. (e) Notices for enhanced liability were received by the assessee from MIB from time to time which included interest liability. In the aforesaid facts, the CIT(A), especially considering the obligation under the licence agreement, demand notices from MIB, and issue of AGR being decided against by the Apex Court judgment in case of telecom companies, held that the liability must be considered to be an ascertained liability notwithstanding that the issue is subject matter of challenge (pending) before the apex Court. Thus, the CIT(A) deleted the disallowance of interest made by the assessing officer. Appeals before this Hon'ble Tribunal:

In the appeals filed by the assessee, the applicability of section 35ABB of the Act has been challenged. In the Revenue's appeal, deletion of disallowance of licence fee on amortization for short period of licence (Ground No.3) and deletion of disallowance of provision of interest has been challenged (Ground No.1 & 2).

18. The Ld. Counsel for the assessee further submitted that the Ld. CIT(A) placing reliance on the decision of the Hon’ble Supreme Court in the case of CIT Vs. Bharti Hexacom Ltd. (supra) ruled that the variable license fee paid to Ministry of Information and Broadcasting is not allowable as revenue expenditure but is governed by provisions of section 35ABB of the Act. The Ld. Counsel for the assessee submitted that the issue before the Hon’ble Supreme Court in the case of CIT Vs. Bharti Hexacom Ltd., though was related to variable license fee paid by the assessee but it was in connection with telecommunication services vis-à-vis the provisions of Section 35ABB of the Act, which are governed under TRAI Act and the Hon’ble Supreme Court did not deal with the variable license fee paid by the assessee to Ministry of Information and Broadcasting Corporation for the DTH services which are not akin to DTH services and do not fall under the ambit of provisions of the section 35ABB of the Act. The Ld. Counsel further submitted that the Ld. CIT(A) has simply followed the decision in the case of CIT Vs. Bharti Hexacom Ltd. and did not deal with the applicability of provision of section 35ABB of the Act to the facts of the Assessee’s case.

19. The Ld. Counsel for the assessee further submitted that initially the license fee was granted from the year 2007 to 2017 and post the year 2017 the license fee was extended from time to time for every 6 months as per the guidelines issued from time to time, therefore, the variable license fee paid by the assessee to MIB for every 6 months has to be allowed as revenue expenditure as there is no enduring benefit so as to treat such payments as capital expenditure and apply the provisions of section 35ABB of the Act.

20. Coming to the appeal of the revenue the Ld. Counsel for the assessee submitted that ground No.1 and 2 are in respect of interest on outstanding license fee and the same was allowed consistently and, therefore, there is no reason to deviate for the assessment year under consideration and make disallowance of Page | 16 such provision of interest on outstanding license fee. The Ld. Counsel for the assessee further stated that the AO himself while completing the assessment years for the A.Y’s 2013-14, 2014-15, 2017-18 and 2019-20 allowed interest on outstanding license fee as deduction and, therefore, there is no reason for not allowing the same during the assessment year under consideration. Ld. Counsel placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT Vs. Bharti Hexacom Ltd. 245 ITR 428.

“SUBMISSIONS OF THE ASSESSEE: 14. Brief submissions of the assessee in respect to the aforesaid appeals are as under: Re: GoA No.1 (Assessee's Appeal) & GoA.3 (Revenue's Appeal): Licence fee u/s 35ABB 15. In this regard, it is respectfully submitted that the fundamental case of the assessing officer and CIT(A) in applying provisions of section 35ABB of the Act is patently erroneous, incorrect and not sustainable. For the said reason alone, the disallowance of licence fee could not have been made. Re: Section 35ABB of the Act per se not applicable to the present case 16. The provision of section 35ABB of the Act reads as follows: "Expenditure for obtaining licence to operate telecommunication services. 35ABB. (1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year and for which payment has actually been made to obtain a licence, there shall, subject to and in accordance with the provisions of this Page | 17 section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure. Explanation. For the purposes of this section,- (i) "relevant previous years" means,- (A) in a case where the licence fee is actually paid before the commencement of the business to operate telecommunication services, the previous years beginning with the previous year in which such business commenced; (B) in any other case, the previous years beginning with the previous year in which the licence fee is actually paid, and the subsequent previous year or years during which the licence, for which the fee is paid, shall be in force: (ii) "appropriate fraction" means the fraction the numerator of which is one and the denominator of which is the total number of the relevant previous years; (ii) "payment has actually been made" means the actual payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee." (emphasis supplied) 17. Section 35ABB of the Act, thus, applies only where an assessee incurs a capital expenditure for obtaining/ acquiring any right to operate TELECOMMUNICATION SERVICES), and for which payment has actually been made for obtaining licence (to operate TELECOMMUNICATION SERVICES) Therefore, if the expenditure is not for obtaining or acquiring any right to operate telecommunication services under section 35ABB of the Act is not applicable.

18.2 Regulatory Authority: Broadcasting and telecommunications are subject to distinct regulatory frameworks and licenses due to the fundamental differences in the services they provide. DTH industry is under Ministry of Information and Broadcasting ("MIB") while Telecom Industry is under Department of Telecommunications ("DoT"). For telecommunications, the DoT issues an access service license, which governs the two-way communication between service providers and users. This enables telecom companies to offer a range of services, such as voice calls, text messaging, internet access, and other data-driven communication, where both parties can interact with each other in real-time. In contrast, MIB is the nodal ministry for broadcasting which involves a one-way communication system, where content is transmitted from the broadcaster to the users through various distribution platforms such as DTH, IPTV, HITS, MSOS, LCOs, etc. Viewers consume the content but cannot directly communicate back with the broadcaster during the transmission. 18.3 Definitions under the Act: The term 'telecommunication services' is not defined under section 35ABB of the Act. However, reference for the meaning of the term 'telecommunication services' can be drawn from the provisions of section 72A(7)(iiia) and 801A(4)(ii) of the Act, relevant extracts of which are reproduced hereunder: "72A. (7) For the purposes of this section, ………….. (aa) "industrial undertaking" means any undertaking which is engaged in- (i) the manufacture or processing of goods; or (ii) the manufacture of computer software; or (iii) the business of generation or distribution of electricity or any other form of power; or (iiia) the business of providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services, or (iv) mining; or (v) the construction of ships, aircrafts or rail systems; "80-IA. (4) This section applies to- …….. (ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 2005. Explanation. For the purposes of this clause, "domestic satellite" means a satellite owned and operated by an Indian company for providing telecommunication service; …………” Page | 20 From the perusal of the aforesaid provisions which inclusively define telecommunication services to include pager, internet, broadband, internet, network, and domestic satellite services (like ISRO) etc., it is evident that the Legislature does not intend to include DTH services within the scope of telecommunication services. The same is supported by the fact that (i) DTH services providers, including the assessee have not claimed nor has the Revenue allowed deduction under section 801A under the Act; and (ii) benefit of carry forward of losses is also not allowed on amalgamation of companies providing DTH business. The Memorandum Explaining provisions of Finance Act, 2002 which sought to provide benefit of section 72A of the Act qua accumulated losses on amalgamation to telecommunication service sector read as under : "Incentive for amalgamation in telecom sector Under the existing provisions contained in section 724 of the Income-tax Act, the benefit of curry forward of losses and unabsorbed depreciation is allowed in cases of amalgamation of a company owning an industrial undertaking or a ship, with another company. Industrial undertaking is defined to mean any undertaking which is engaged in the manufacture or processing of goods or computer software, the business of generation or distribution of electricity or any other form of power, mining or the construction of ships, aircrafts and railway systems. With a view to encourage rapid consolidation and growth in an important infrastructural area it is proposed to extend the benefit under this section to an industrial undertaking engaged in the business of providing telecommunication services, related to infrastructure. This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004, and subsequent years. Further, if DTH services were to be included within the scope of telecommunication services, the assessee would have been claiming the benefit of section 80LA of the Act. (clause 27)" Thus, the law intended to provide benefit under section 72A to telecom sector and not to broadcast/ DTH service providers. 18.4 Most importantly, even The Telecom Regulatory Authority of India Act, 1997 expressly excludes broadcasting services from the definition of 'telecommunication service provided under section 2(k) of the said Act, which reads as under. "(k) "telecommunication service" means service of any description (including electronic mail, voice mail, data services, audio tex services, video tex services, radio paging and cellular mobile telephone services) which is made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature, by wire, radio, visual or other electro-magnetic means but shall not include broadcasting services. It may be noted that following proviso was inserted to the aforesaid definition w.e.f 24.01.2000:

"Provided that the Central Government may notify other service to be telecommunication service including broadcasting services." However, till date, there has been no notification notifying broadcasting services to be considered/included as telecommunication service. 18.5 Insertion of section 35ABB much prior to DTH industry coming into existence Section 35ABB of the Act was inserted vide Finance Act, 1997 stating that capital expenditure incurred for acquiring any right to operate telecommunication services, shall be amortized over the unexpired period of licence, starting from the year of actual payment. The relevant extracts of Memorandum explaining provisions of Finance Bill 1997 are reproduced below: "Amortisation of telecom licence fees In order to give fillip to this sector in addition to tax holiday, the Bill proposes to insert a new section 35ABB in the Income-tax Act. The section seeks to provide that any capital expenditure incurred and actually paid by an assessee on the acquisition of any right to operate telecom services by obtaining licence will be allowed as a deduction in equal instalments over the period for which the licence remains in force. It further seeks to provide that where the licence is transferred and proceeds of the transfer are less than the expenditure remaining unallowed, a deduction equal to the expenditure remaining unallowed as reduced by the proceeds of transfer, shall be allowed in the previous year in which the licence has been transferred. It also seeks to provide that if the licence is transferred and proceeds of the transfer exceed the amount of expenditure remaining unallowed, the excess amount shall be chargeable to tax as profits and gains of business in the previous year in which the licence has been transferred. It also seeks to provide for amortisation of unallowed expenses in a case where a part of the licence is transferred. The restrictive provisions of this section shall not apply in relation to a transfer in a scheme of amalgamation whereby the licence is transferred by the amalgamating company to the amalgamated company, the latter being an Indian company. The proposed amendment will take effect from 1st April, 1998 and will. accordingly, apply in relation to assessment year 1998-99 and subsequent years. [Clause 6]" DTH services, however, were launched in India in early 2000s i.e., much later than insertion of section 35ABB in the statute, which establishes that it was never the intent of law to include broadcasting services within the scope of the said section. If the Legislature intended to cover broadcasting services within the purview of section 35ABB of the Act, the provision would have been suitably amended. 18.6 The assessee further understands that the provisions of section 35ABB of the Act has not been invoked in the case of any major DTH player in the Indian industry.

21. The judgement in the case of CIT v. Bharti Hexacom Ltd. [2023] 458 ITR 593 (SC) has been relied by the CIT(A) to consider the impugned license fee as capital expenditure to be amortized under section 35ABB of the Act. In this regard, it is submitted that in the said case, the controversy related to the assessees/ companies engaged in the business of telecommunication services and had procured licences in different telecom circles. In the present case, as clearly explained above, the assessee is not engaged in telecommunication business but broadcasting/ DTH business, which is completely separate from the former (telecommunication) industry and to which provisions of section 35ABB of the Act do not apply. Being so, the aforesaid judgment of the apex Court has no application in the facts of the present case. 22.In view of the aforesaid, since provisions of section 35ABB of the Act are not applicable to the assessee, not engaged in telecommunication services, the question of any amortization of the variable licence fee does not arise; thus, the disallowance made by the assessing officer is erroneous. The variable licence fee is thus allowable revenue deduction under section 37 of the Act. Assessee's case for assessment year 2010-11 tagged with Bharti Hexacom batch 23. Furthermore, as regards averment that the case of the assessee was also tagged in the aforesaid judgement of the Supreme Court, it is submitted that the case appearing vide Civil Appeal No. 6897/2018 [SLP (C) No. 019426/2018] in the list of cases is the appeal of Revenue Department before the apex Court in the case of the assessee for AY 2010-11 which was tagged and disposed with Bharti Hexacom (supra) batch. In this regard, it may be noted that the assessee company had already (prior to the decision of the apex Court) settled the appeal pertaining to assessment year 2010-11 under Direct Tax Vivad se Vishwas Scheme, 2020 (DTVSV), Copy of Form 5 issued under the DTVSV in this regard is placed at page 671 of the paperbook. The Revenue, however, failed to withdraw the appeal for reason best known to the Revenue and hence the name of the assessee continues to appear in the batch of cases. Since the appeal had already been settled before the decision by the apex Court, it cannot, in our submissions, be averred that the appeal is decided against the assessee by the apex Court. In that view of the matter, no adverse inference could be drawn against the assessee. 24. Be that as it may, it is submitted that the assessee makes payment of variable licence fee annually; the said payment is computed with reference to the annual gross revenues; the licence fee is for the recurring permission to operate to provide DTH services to the customers; the benefit available by making the payment of Page | 23 annual licence fee lasts for that particular year only, and the subsequent year is a standalone year for which the assessee has to again make payment towards licence fee, as percentage of gross revenue; non-payment of licence fees could result in cancellation/ revocation in terms of the licence agreement (refer Article 15 of Licence Agreement for Termination). In the said facts, the annual variable licence fee is, in our submissions, clearly revenue in nature and incurred wholly and solely for business purposes and hence allowable deduction under section 37 of the Act.

25. Support in respect of license fee being revenue in nature can also be drawn from operating guidelines of 30th December 2020 issued by the MIB (handed during course of hearing), which provides that the no entry fee shall be charged for renewal of DTH licence, such operators are liable to pay only variable license fees based on revenue earned on a yearly basis at the specified percentage. Thus, on renewal, the obligation to pay licence fee pertains only to the year in which revenue is earned. As there is no enduring benefit being achieved through the payment of license fees on a yearly basis, the same is allowable under section 37 of the Act.

26. It is settled law that recurring consideration paid for use cannot be equated to price paid for acquisition of any asset and thus, the fees paid will be treated as revenue expenditure [refer Mewar Sugar Mills Ltd. vs. CIT, [1973] 3 SCC 143, Empire Jute Co. Ltd vs. CIT [1980] 3 Taxman 69 (SC), Gotan Lime Syndicate v. CIT 59 ITR 718 (SC)].

27. In view of the aforesaid, the annual variable licence fee paid by the assessee with reference to adjusted gross revenue for the year is clearly allowable revenue expenditure. Without prejudice- full amortization under section 35ABB in same year 28. Strictly without prejudice to the aforesaid and in the alternative, if one is to assume that section 35ABB of the Act is applicable to the present case and the licence fee/ expenditure is to be amortized thereunder, even then, for the year under consideration, the entire licence fee deserves to be amortized over the period of licence (6 months): 29. In terms of section 35ABB of the Act read with the Explanation thereto, expenditure is required to be amortized in appropriate fraction over the period in which licence is paid till the licence is in force. In the present case, since the validity of licence for the relevant year is for six months at one time (discussed supra), the annual licence fee is required to be amortized over the period of licence. The working of the same is given as under:

Details of licence fee as per the Audited Financial Statements are as under:-

34. In this regard, it is respectfully submitted that the action of the CIT(A) in treating the provision for interest on delayed payment of licence fee as an ascertained liability deserves to be upheld and Revenue's appeal is liable to be dismissed for the reasons explained in detail infra: 35. The relevant facts in relation to the issue under consideration, which clearly demonstrate that incremental provision of Rs. 119,01,19,717, towards interest obligation for delayed payment of licence fee, is an ascertained liability, are as under: 35.1 It is emphatically reiterated that in terms of the Licence Agreement, the assessee was/is required to pay annual licence fee @10% of the gross revenue earned during the period. Such annual licence fee is to be paid on the basis of gross revenue as per the prescribed formulae. Further, in terms of the contract, MIB is authorized to scrutinize the audited accounts of the assessee for a specified period to verify if the licence fee deposited by the assessee is in accordance with the formula as prescribed in the agreement and in case there is any difference in the amount so deposited by the assessee and the amount as computed by MIB, the same was payable by the assessee along with simple interest @ 1% per month on the difference for the period of delay [refer Article 3 of the License Agreement). Thus, the obligation of payment of interest is expressly arising from the binding license agreement entered into between the assessee and the ministry. The said Licence Agreement unambiguously lays down all the factors for interest obligation including - the principal, i.c., the amount of license fee, the rate i.e., 1% per month, and the period, i.e., days by which payment of licence fee is delayed. The provision recognized and claimed by the assessee is undisputedly computed as per terms defined in the Licence Agreement -computation of provision is placed at page 266 of the paperbook. 35.2 The assessee has been computing and paying the variable licence fee @ 10% of Adjusted Gross Revenues as per its own computation after making certain exclusions/ deduction. Initially, the dispute was decided by TDSAT vide order dated 28.05.2010 (copy of the order is placed at pages 243 to 265 of the paperbook, which allowed certain deductions claimed by the appellant. The dispute is now pending before the Supreme Court. It may be noted that the TDSAT decided the issue basis its earlier order dated 07.07.2006 in the case of Association of Unified Telecom Service Providers of India (AUSPI) v. Uol. The said order of TDSAT was, however, later reversed by the apex Court in Civil Appeal No.5059 of 2007 in the case of Uol v. AUTSPI holding that the Tribunal did not have jurisdiction to decide validity of definition of Adjusted Gross revenues in the licence agreement. 35.3 The appellant thereafter received demand notices dated 19.03.2014 for enhanced licence fee as well as interest on outstanding licence fee which quantified outstanding licence fee of Rs.243.78 crores and interest of Rs.54.72 crores upto 19.03.2014. On application by the assessee, the TDSAT, vide order dated 04.04.2014, granted an interim protection and directed that "the UOI shall not take any coercive measure against the Petitioner for realization of the impugned demand" (copy of the order is placed at pages 459 to 460 of the paperbook). 35.4 In pursuance of the said dispute(s)/ demand notices, the assessee has created provision for interest on delayed payments of licence fee as per terms of the Licence Agreement; the provision has consistently been created with effect from financial year 2012-13 and onwards. 35.5 It is pertinent to note that similar issue relating to computation of AGR with respect to deduction/ exclusion of certain items was raised in the case of telecom companies. During the year under consideration, the apex Court has, vide order dated 24.10.2019, decided the issue against the telecom companies qua exclusion of various items while computing AGR and consequential licence fee (copy of the order is placed at pages 267 to 419 of the paperbook). As the matter pertaining to AGR dispute in respect of both telecom and DTH companies is similar in nature, the said findings of the Hon'ble Supreme Court shall have a strong bearing on the similar matter pending regarding the DTH companies Most importantly, the Hon'ble Supreme Court in the aforesaid judgement specifically ruled on the issue pertaining to liability of interest in case of delayed payment of licence fee, holding that the interest can be levied and compounded in case there is a contractual obligation (refer pages 267 to 419 @398-418 (para 197) of the paperbook).

Considering the said unfavorable judgment for telecom industry, the ongoing litigation for DTH industry, including the assessee, is likely to result in outflow of enhanced licence fee and interest thereon. 35.6 The MIB has, from time to time, issued fresh letter demanding licence fee and interest as under: - dated 19.03.2014 for enhanced licence fee of Rs.243.78 crores and interest of Rs.54.72 crores upto 19.03.2014; - dated 21.12.2020 for enhanced licence fee of Rs.1642.37 crores for period 2006-07 to 2018-19 alongwith interest (not quantified)- refer pages 491 to 494 of paperbook; - dated 26.10.2022 for enhanced licence fee of Rs.483.59 crores for period 2019-20 to 2020-21 alongwith interest (not quantified)- refer pages 489 to 490 of paperbook; - dated 31.03.2023 demanding the outstanding licence fee of Rs. 1657.71 crores and interest for various years aggregating to Rs.1074.31 crores including Rs.116.20 crores for financial year 2019-20- refer pages 486 to 488 of paperbook. 35.7 It is most important to note that enhanced license fee computed as per AGR calculation by the Ministry, though disputed by the assessee, has been considered for allowance by the assessing officer, albeit in terms of section 35ABB of the Act. Being so, the interest thereon arising out of the same contractual license between the assessee and MIB could not be considered as uncertained. In the aforesaid facts, particularly that - (i) obligation to pay 36. interest is arising out of the binding contract/ licence agreement between the assessee with MIB; (ii) the disputed principal amount of licence fee is considered allowable by the assessing officer; (iii) similar issue in respect of computation of AGR and consequential licence fee is decided against the telecom services providers by the Supreme Court; (iv) demand notices consistently issued by MIB for enhanced licence fee and interest from time to time; and (iv) provision for interest is computed strictly in line with the licence agreement, the same is, in our submissions, clearly an ascertained liabilityallowable deduction notwithstanding that issue is pending before the Supreme Court for final determination.

48. Coming to the facts of the present case it is not as if the Assessee has disputed its liability to pay licence fee. In other words during the AYs in question it continued to pay the annual licence fee to the NDMC and in those years it was protected in terms of an Interim order. What was being disputed by the Assessee in the suit initiated by it against the NDMC was the reasonableness of the enhancement of the licence fee at the stage of renewal of the licence. There is a distinction, therefore, to be drawn between disputing the liability as such and disputing the reasonableness of the enhancement of the licence fee.

49. What appears to have weighed with the CIT(A) as well as the ITAT in the impugned order in these cases is that in the suit filed by the Assessee an averment was made that it had not voluntarily signed on the Agreement dated 23rd September, 1980 and had averred that the Agreement having been "got signed by the NDMC authorities from the Directors under undue influence and coercion is illegal and not enforceable in law." What also weighed with the ITAT is that the Assessee could not on the one hand challenge the validity of the said agreement and on the other urge the Department to act upon it because it is beneficial to the Assessee.

"4. The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. (f) Calcutta Company Ltd vs CIT: 37 ITR 1 (SC) (g) Metal Box Company of India Ltd vs Their Workmen: 73 ITR 53 (SC) (h) CIT vs Woodward Governor India Pvt Ltd: 312 ITR 254 (SC) (i) CIT vs U.P. State Industrial Development Corporation: 225 ITR 703 (SC) (j) CIT vs Burhwal Sugar Mills Co Ltd: 82 ITR 784 (All) (k) Madho Mahesh Sugar Mills Ltd vs CIT: 92 ITR 503 (All) (l) Delhi Flour Mills Co Ltd vs CIT: 95 ITR 151 (Del) (m) CIT vs Laxmi Sugar & Oil Mills Ltd: 114 ITR 684 (All) (n) Eddy Current Controls (India) Ltd vs CIT: 198 ITR 491 (Ker) 50. In view of the aforesaid, it is submitted that, in the present case, the assessee had an obligation to pay interest, arising as a result of contract entered into with MIB; the liability to pay interest has crystallized in light of the attendant circumstances; the same is an ascertained liability quantified with reasonable certainty. Thus, the provision for interest created by the assessee is an allowable deduction under section 37(1) of the Act.

51. It may be reiterated that the assessee has also created provision for the enhanced licence fee (principal amount), which is disputed before the apex Court. The said licence fee is allowed by the Revenue albeit under section 35ABB of the Act there is no dispute as to the same delayed payment of such licence fee is unascertained is self-contradictory and not sustainable.

Principles of consistency 54. It may be noted that assessee has been consistently creating such provision for interest qua delayed payment of licence fee since assessment years 2013-14 and onwards. It is pertinent to note that the claim of deduction of such provision for interest has been accepted by the Revenue in completed scrutiny assessments for various past years, viz., assessment years 2013-14, 2014- 15, 2017-18. Further, similar claim of interest also stood accepted in assessment year 2019-20, albeit under section 143(1) of the Act.

no.2 that the interest expenditure is not deductible as revenue expenditure, as the same comes into existence on the basis of licence fee held to be capital in nature, in terms of judgement of the apex Court in the case of Bharti Hexacom (supra), it is submitted as under: 57.1 It is, at the outset, submitted that the averment made by the Revenue in the ground of appeal qua provision for interest to be considered as capital expenditure is neither the basis of disallowance nor was the case of the Revenue before the lower Page | 35 authority. It is trite law that it is not open for the Revenue to change the complexion of the case for the first time before the Tribunal, the Tribunal is not vested with power of enhancement or to withdraw relief granted by the assessing authority [refer MCorp Global (P.) Ltd. vs. CIT: [2009] 309 ITR 434 (SC), Indian Steel & Wire Products Lid, vs. CIT: 208 ITR 740 (Cal.), Daimler India Commercial Vehicles (P.) Ltd. vs. DCIT: 416 ITR 343 (Mad)- Revenue's SLP dismissed). 57.2 Be that as it may, interest is for delay in payment of annual licence fee as per the terms of the agreement entered into with MIB. The compensatory interest does not result in any capital asset or right coming into existence; the said interest is thus required to be expensed off in any case. The same is thus clearly a revenue expense; there cannot be any dispute whatsoever qua allowability of the same. Reliance, in this regard, is placed on the following cases, wherein, the Courts have held that interest/damages paid for breach of contract, carried on in the normal course of business, is in the nature of expenditure incurred wholly and exclusively for purposes of business, allowable as deduction under section 37(1) of the Act: (o) Prakash Cotton Mills Ltd. v. CIT: 201 ITR 684 (SC) (p) CIT v. Desiccant Rotors International (P.) Ltd.: 347 ITR

32. (Del.) (q) CIT v. Enchante Jewellery Ltd.: 220 Taxman

8. (Del.) (r) New Mahalaxmi Silk Mills Pvt. Ltd.: 206 ITR 302 (Bom.) (s) Golder v. Great Boulder Mines:

33. TC 75. (t) Sardar Prit Inder Singh vs. CIT: 27. Taxman 524 (P&H) (u) CIT v. Neo Structo Construction Ltd: 218 Taxman 24. (Gujarat) (v) Huber Suhner Electronics (P.) Ltd. vs. DCIT: 59. SOT

59. (Del ITAT) (w) DCIT v. Hindustan Packaging Co. Ltd.: 105 Taxman 245 (Ahd.) (MAG.) (x) G.L. Rexroth Industries Ltd. v. DCIT:

59. TTJ 757 (Ahd.) (y) ITO vs. Radiant Cables (P) Ltd.:

18. ITD (Hyd)

79. (z) Vodafone East Ltd. v. ACIT: 156 ITD 337 (Kol.) 57.3 As regards reference made to the decision of apex Court in the case of Bharti Hexacom (supra) is concerned, it is submitted that the said judgment of the Supreme Court (i) is not applicable to the case of the assessee as discussed supra; and (ii) does not deal with the issue of nature of interest; thus, such a reference made by the Revenue is misplaced. 57.4 In the present case, the licence fee is itself revenue in nature for reasons explained above and hence interest on delayed payment thereof, even as per the rationale of the assessing officer, deserves to be allowed as deduction and not be construed as capital expenditure.

58. Reliance in this regard is placed on the decision of the Delhi bench of the Tribunal in the case of Bharti Airtel Ltd vs. PCIT vide dated 21.02.2025. wherein levy of compensatory interest and penalty in terms of the licence agreement was considered to be revenue in nature dehors the fact that licence fee in context of telecom operators was held to be capital in nature by the apex Court Bharti Hexacom (supra). The relevant observations of the Tribunal are extracted hereunder for ready reference: "10.5 At the same time, after taking into consideration the judgement of the Hon'ble Supreme Court in Bharti Hexacom's case (supra), we are of the considered view that allowability of interest/penalty in the context of AGR issue was not in issue at all. The issue only revolved around the determination of validity of Hon'ble Delhi High Court holding a part of the license fee to be capital expenditure and part to be revenue expenditure. …………… 10.8 After taking into consideration the aforesaid relevant clauses, we are of the considered view that the interest and penalty clauses are enshrined in the license agreement as compensatory mechanism for delayed payment of three components i.e entry fee, license fee and charges. Charges is not specifically defined but when we take into consideration the aforesaid clauses we find that apart from entry fee and license fee the Licensee was supposed to pay Radio Spectrum Charges and oyalty for the use of spectrum for point to point links and access links. These charges admittedly were considered as revenue expenditure. Thus sub clause 10.2 mentions that for delayed payment of fee and other charges due to this provision of clause of termination of license can be invoked. It is very much apparent from the clauses of license agreement that the interest is payable on the quantum of delayed payment of license fee determined as per the license agreement. Penalty is payable in case the total amount paid as quarterly License Fee for the 4 (four) quarters of the financial year, falls short by more than 10% of the payable License Fee. Delayed payment of penalty shall also be liable to interest. ………… 10.11 Then we are of the considered view that the nature of agreement giving rise to the payment of interest or penalty should have been examined by the PCIT. The reasoning given by the Id. PCIT as followed by the Id. AO in the effect giving order is that the interest and penalty will take the colour of license fee to hold that the same is capital expenditure. However, we consider the same to be not a justified manner of determining the taxability of an expenditure. Every expenditure or income giving rise to a tax incidence should be categorically defined either in the statute or be otherwise impliedly decipherable from the transaction. It is not justified to draw any inferences about the nature of an expenditure being revenue or capital on the basis of another expenditure without analyzing the surrounding circumstances and the context in which the liability of expenditure arises. 10.12 The fact that initially PCIT intended to question the payment of interest and penalty being hit by the provisions of section 37 of the Act, but, which was not ultimately done shows that as with regard to relationship of this expenditure with the business expediency of the assessee is not disputed. PCIT should have been cognizant of the fact that since there was a dispute between the assessee and the licensor Department of Telecommunication with regard to various heads of revenue, as part of AGR, on which the license fee was payable and which has been ultimately settled by the Hon'ble Supreme Court only, thus, for valid reasons there was delay on the part of the assessee to make payment of the license fee and it is only subsequent to the determination of the issue finally that the assessee had to revise its claim in the context of license fees which has been accepted. This shows that the interest and penalty have arisen not out of an act of voluntary nature or in the background of contractual obligation to pay interest and penalty as part of the principal liability, but this expenditure of interest and penalty as arisen out of a contingency due to attempt of the assessee to contest the issue of quantum of license fee itself. Therefore, the incidence of interest and penalty is outcome of a business decision to defend the license fee quantum and, thus, it cannot be considered to have submerged with the license fee and to be coloured in its nature similar to license fee as a capital expenditure." (emphasis supplied).

59. For the aforesaid cumulative reasons, the provision for interest on delayed payment of license fee is allowable as deduction; the disallowance made by the assessing officer is not sustainable. Conclusion / prayer

Expenditure for obtaining licence to operate telecommunication services. 35ABB.(1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services [either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year] and for which payment has actually been made to obtain a licence, there shall subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure.

“(k) telecommunication service” means service of any description (including electronic mail, voice mail, data services, audio tex services, video tex services, radio paging and cellular mobile telephone services) which is made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature, by wire, radio visual or other electro-magnetic means but shall not include broadcasting services.”

"12.4 In the year 2005, the Finance Act, 1994 was again amended to define "broadcasting to include abroad casting agency or an organization collecting the broadcasting charges for transmission of electromagnetic waves through space or through cables, direct to home signals or by any other means to cable operator including multisystem operator or any other person on behalf of the said agency or an organization through any representative or agent appointed in India. Thus, service tax was levied on direct to home (DTH) broadcasting services. Modus Operandi of the Assessees and their aspects: 13. As regards the business of the assessees herein, they are DTH broadcasting service providers licenced by the Central Government in terms of the provisions of Section 4 of the Indian Telegraph Act, 1885 and Sections of the Indian Wireless Telegraphy Act, 1933. Their modus operandi is that they set up a hub which enables them to downlink signals from the satellites of various broadcasters of TV channels (Star, BBC, etc.), then they uplink those signals to their own Ku Band (such as INSAT 4CR satellite) designated transponders for transmission of the signals in Ku band. These signals are received by the dish antennae which are installed at the subscribers' premises. Since these signals are in encrypted form they are decrypted by the Set-Top Boxes and the viewing cards inside these boxes enable subscribers to view the various TV channels on their TV sets. Invariably, the set-top boxes are installed without any consideration and remain the property of the assessees. 13.1 If we closely examine the modus operandi of the activity undertaken by the assessees, it would be evident that their activity involves at least two aspects: the first, is the act of relaying the signals from the satellites of various broadcasters of TV channels, and the second, is the object of such relaying of the signals, which is the effect of the content delivered to the subscriber. This effect is nothing but the entertainment of the subscribers. In other words, the activity of the assessees involves at least two aspects which correspond to the subject-matter of the levy under the Central Finance Act, 1994, namely, broadcasting service and the respective State enactments as providing entertainment to the subscribers.

of the assessee is allowed and ground No.3 of grounds of appeal of the revenue is dismissed.

30. Coming to ground No. 1 and 2 of grounds of appeal of the revenue we observed that the issue in appeal with regard to Page | 42 deletion of disallowance of provision for interest on outstanding license fee was disallowed by treating it an unascertained liability. We observed that the Ld. CIT(A) elaborately considered the submissions of the assessee, the terms of the agreement, the findings of the AO and held that the interest on license fee paid by the assessee as per the agreement is contractual liability and liability towards interest on outstanding license fee, enhanced license fees is ascertained liability in the light of guidelines issued by the MIB, agreement with MIB followed by demand letter of MIB and also by virtue of favourable orders of the Hon’ble Supreme Court on definition of adjusted gross revenue and levy of interest and thus the assessee had correctly made provision on interest of license fee following mercantile system of accounting observing as under :-

“5.2 Ground No. 2 relates to disallowance of Interest on License Fee. It is an undisputed fact that the appellant was liable to pay simple interest at 1% per month on delay payment of Annual License Fee as per the as per the modification in agreement for DTH services issued by MIB vide File No. 8/12/2006-BP&L dated 6th November, 2007. The extract of this guidelines is as under: "3.1A.2 Annual License fee for the FY shall be finally determined on the basis of final annual accounts of the FY audited by the Statutory Auditors, which shall not be later than 30th September of the following FY. If the amount so determined is found to be higher than the amount already deposited as per clause 3.1A.1, the difference amount along with simple interest @1% per month on the difference for the period of delay calculated from 1st May of the following FY upto and including the date of such payment shall be paid in one lumpsum within a period of 15 days from the date of finalization of audited accounts, or 15th October of the following FY whichever is earlier." 5.2.1 During the present financial year, the appellant claimed annual license fees at Rs. 294,80,00,000/- and interest on license fees at Rs. 119,01,19,717/-, which shows that the claim of interest was prima facie on higher side. Accordingly, Page | 43 the AO took up the issue for examination in details and found during assessment proceedings that the appellant had made the claim of interest provision on disputed license fees u/s 37 of the Act and the same is not an allowable expenditure being a provision for an unascertained liability towards interest. 5.2.2 During the appellate proceedings, the appellant submitted that the appellant was obliged to pay license fee at an agreed rate calculated on Gross Revenue (GR) and the GR is defined in clause 3.1.1 of the agreement with MIB to include different types of revenues of the DTH company without any deductions. Further, the definition of gross revenue as well as computation of license fee payments is subject matter of dispute between the DTH companies and MIB since its inception. Due to the dispute with MIB, the appellant while making payments of license fee to MIB has claimed certain deductions from gross revenue but the MIB didn't consider these deductions in computing GR because clause 3.1.1 of the agreement doesn't allow any deduction from the gross revenue. The appellant referred this dispute matter to the Telecom Disputes Settlement and Appellate Tribunal (TDSAT), an appellate authority applicable to both Telecom and DTH Industries, who had passed an order dated 28.05.2010 in Petition No. 92(C) of 2009 deciding that specified deductions as sought by the Appellant from the GR to determine the license fees payable to the MIB, shall be allowed. This was confirmed/decided on the basis of the license agreement between the Appellant and the MIB to provide DTH services in India and in the light of its earlier order dated 07.07.2006 in the case of Association of Unified Telecom Service Providers of India (AUSPI) Vs Union of India (UOI). Thus, the certain deductions from GR were allowed by the TDSAT for computing license fees liability. Thereafter, the appellant had received demand notice/letter dated 19.03.2014 for enhanced license fees as well as interest on outstanding licence fees with the outstanding license fees of Rs. 243.78 crores and interest of Rs. 54.72 crores upto 19.03.2014 and on miscellaneous application by the appellant, the TDSAT by its order dated 04.04.2014 granted an interim protection and directed that the UOI shall not take any coercive measure against the petitioner for realization of the impugned demand" The appellant further submitted that the Hon'ble Supreme Court had reversed the order of the TDSAT dated 07.07.2006 in civil appeal No. 5059 of 2007 in the case of UOI VS AUSPI & others on 11.10.2011 stating that the TDSAT doesn't have jurisdiction to decide on definition of adjusted gross revenue or any terms and conditions of the agreement. The Hon'ble Court had given its final decision at para 40 stating that "that this Court has consistently taken a view that once a licensee has accepted Page | 44 the terms and conditions of a license, he cannot question the validity of the terms and conditions of the license before the Court. We therefore, hold that the validity of the definition of Adjusted Gross Revenue in the license agreement and to exclude certain items of revenue which were included in the definition of Adjusted Gross Revenue in the license agreement between the licensor and the licensee." In the light of this decision, the Appellant had created the provision on interest on the outstanding demand for enhanced licence fee as per Guidelines to DTH service issued by MIB in the present financial year, however the payment of same was not done due to specific stay order by the TDSAT. It is important to note that as per license condition, interest is payable on any shortfall/delay since beginning of period since when it was required to be paid. In view of the above facts and ongoing dispute, the Appellant had determined interest on license fee at Rs. 119,01,19,717/- for FY 2019-20 on outstanding license fees till the end of the present financial year i.e. 31st March, 2020, which is payable as per the MIB guidelines to DTH services for the earlier financial years but the AO denied the same stating that it is an unascertained liability. During the appellate proceedings, the appellant contested this issue on several counts stating that the interest on licence fee is not an unascertained liability in nature as supported by decision of Hon'ble Supreme Court in Bharat Earth Movers v. Commission of Income Tax (supra). Further, the Appellant has satisfied all the condition laid down by the Hon'ble Supreme Court in case of Rotork Controls India Ltd (supra) viz there is a present obligation to pay interest on the basis of the contract and unfavourable judgement of Hon'ble Supreme Court on similar issue in telecom operators, the ongoing litigation is likely to results into outflow and the interest on licence fee is computed as per the Guidelines to DTH services issued by MIB. Also, the Appellant follows the mercantile system of accounting wherein it is not necessary that the liability must have actually been paid during the concerned financial year. The appellant also submitted that the crux of the matter is the reasonable certainty with which the liability can be ascertained on the date of the provision for the stated expense and corresponding adjustments would be made in the year in which the suit is finally decided or the disputes settled as held by Jurisdictional High Court in Mis Aggarwal and Modi Enterprises (Cinema Project) Co. Pvt Ltd (supra). Further. appellant submitted vide written submission dated 14.01.2024 that it had received a letter dated 31.03.2023 from Ministry of Information and Broadcasting (MIB) demanding outstanding license fees of Rs. 1675.71 crores and interest for various years of Rs. 1074.31 crores including Rs. 116,20,45,083/- for FY 2019-20 in support of its contention that the interest on license fees claimed by the appellant is an ascertained liability. 5.2.3 The issue of allow ability of provision for interest on license fees has been examined and it is seen that the appellant was liable to pay annual license fees as well as interest on delay payment of annual license fees to the MIB as per the agreement. Perusal of the agreement with MIB reveals that the appellant is liable to pay license fees @10% of gross revenue and the gross revenue has been defined in clause 3.1.1 of the agreement stating that *Gross Revenue for this purpose would the gross inflow of cash, receivable or other consideration arising in the course of ordinary activities of the Direct to Home (DTH) enterprise from rendering of service and from the use by others of the enterprise resources yielding rent, interest, dividend, royalties, commissions etc. Gross revenue shall, therefore, be calculated, without deduction of taxes and agency commission, on the basis of billing rates, net of discounts to advertisers, Barter advertising contracts shall also be included in the gross revenue on the basis of relevant billing rates. In the case if license providing or receiving goods and service from other companies that are owned or controlled by the owners of the licensee, all such transactions shall be valued at normal commercial rates and included in the profit and loss accounts of the license to calculate its gross revenue." Plain reading of the above definition shows that the gross revenue includes all receipts of the appellant whether it directly relates to DTH operation/services or not. However, the appellant has made certain deduction from the gross revenue for computing payable license fees, which resulted into dispute between the appellant and the MIB about quantification of gross revenue (GR) for determination of license fees in which TDSAT had decided the issue vide order dated 28.05.2010 in favour of the appellant on the basis of its earlier order dated 07.07.2006 in the case of AUSPI Vs UOI but the same was reversed by the Hon'ble Supreme Court on 11.10.2011 in Civil Appeal No. 5059 of 2007 in UOL VS AUSPI. Accordingly, the appellant had received demand notice/letter dated 19.03.2014 for enhanced license fees as well as interest on outstanding licence fees with the outstanding license fees of Rs. 2437A crores and interest of Rs. 54.72 crores upto 19.03.2014 and on miscellaneous application by the appellant, the TDSAT had issued order dated 04.04.2014 granting interim protection from coercive measure for recovery. Also, the appellant's appeal against the order of the TDSAT dated 28.05.2010 is presently pending with the TDSAT in the case of UOI Vs AUSPI has already been struck down on 11.10.2011.in Hon'ble Supreme Court, which is likely to be dismissed as the base order of the Civil Appeal No. 5059 of 2007 and the Supreme Court has categorically held that the licensee can't challenge the definition of adjusted gross revenue in the agreement once the licensee had accepted the term & conditions of a license. Also, the Hon'ble Supreme Court in the case of UOL VS AUSPI & Ors in Civil Appeal Nos. 6328-6399 of 2015 dated 24.10.2019 held that penal interest is a contractual liability and as per the agreement and therefore, interest on delayed /shortfall payment can be levied and In the light of the exhaustive definition of gross revenue, unfavorable decision of the Compounded because the Government has been deprived of the benefit of revenue. Hon'ble Supreme court on similar & identical issue in telecom sector and demand notice/letter of MIB to the appellant, the appellant had made a provision for enhanced license fees as well as interest on license fees and claimed these expenditures in the present financial year 2019-20 as per the clauses of license agreement with MIB as well as guidelines to DTH services. Further, the appellant had furnished a copy of demand letter dated 31.03.2023 Issued by MIB for payment of outstanding licence fees as well as interest thereon, wherein the yearly bifurcation of license fees & interest on outstanding licence fees are duly reflected in support of it's claim of interest being ascertained liability and justification on quantum of interest provision. It is also seen that the appellant had received demand notice/letter for enhanced license fees as well as interest on outstanding licence fees in earlier occasions also such as on 19.03.2014 with outstanding license fees of Rs. 243.78 crores and interest of Rs. 54.72 crores upto 19.03.2014, on 21.12.2020 with license fees demand of Rs. 1642.37 crores for the period 2006-07 to 2018-19 alongwith interest (without quantification of interest) and on 26.10.2022 with license fees of Rs. 483.59 crores for the period 2019-20 to 2020-21 alongwith interest (without quantification of interest), however, these communications from MIB dated 21.12.2020 & 26.10.2022 do not quantify the interest dues for FY 2019-20 and only quantifies the enhanced license fees but indicate the levy of interest on delayed payment of enhanced license fees. In fact, the demand letter dated 31.03.2023 clearly quantified the interest dues at Rs. 1074.31 crores till 31.03.2023, which support the contention of the appellant that the interest on outstanding demand was an ascertained liability for present financial year 2019-20. Also, the examination of MIB latest demand letter dated 31.03.2023 shows that the MIB had determined the license fees at Rs. 513.69 crores and interest at Rs. 116.20 crores but the appellant had claimed the license fees at Rs. 294.80 crores only due to change in terms services under direction of the GOI w.r.t Broadcaster's share and interest at Rs. 119.01 crores for FY 2019-20 based on its own calculation. 5.2.4 The appellant also contended that it follows mercantile system of accounting and it is not necessary that the liability must have actually been paid during the financial year. There is no dispute about the adoption of accounting system by the appellant and allow ability of expenses/liability on accrual basis in the concerned financial year. The AO's point is that the claim of provision for arrear interest on license fees is not an ascertained liability for the present year because there was no internal or external event, which suggest that the liability of arrear interest is now become certain, However, it is seen that the appellant had made the claim for enhanced license fees after considering the definition of gross revenue and the AO did not object on the claim of license fees but made only amortization in 10 years by applying section 35ABB of the Act. Since there were dispute in the calculation of gross revenue for determination of license fees and the AO did not object to the claim of license fees, the provision for interest on unpaid license fees upto 30.04.2019 based on the guidelines to DTH service issued by MIB cannot be said an unascertained liability. Further, it is observed that the letter of MIB dated 31.03.2023 supports the contention of the appellant that it was liable to pay interest on outstanding license fees 5.2.5 During the appellate proceedings, the appellant has furnished a computation of interest on delay of license fees based on the MIB leter dated 31.03.2023, which shows that the appellant had calculated the said interest on outstanding license fees for FY 2015-16 to 2018-19 (due upto 30.04.2019) at Rs. 116.20 crores against the provision of that Rs. 119.01 crores for FY 2019-20. So, the provision made by the appellant is almost same as demanded by the MIB. 5.2.6 In short, the appellant had made the claim of enhanced license fees as well as interest provision as per the clause 3.1.1 and 3.1A.2 of the agreement with MIB as there was a dispute between the appellant and MIB for the quantification of gross revenue. Further, it is seen during the appellate proceedings that the AO had accepted the quantum of claim of license fees in earlier years though it was amortized for the entire license period of 10 years but did not allow the provision for interest on outstanding of such enhanced license fees provided in consonance of the agreement clause for interest on delayed payment of license fees. Also, the appellant had received several demand letters from MIB for the enhanced license fees along with interest thereon prior and after the present financial year, which supports the claim of the appellant that it is liable to pay interest on outstanding license fees @1% per month. Also, the Hon'ble Supreme Court in the case of UOI VS AUSPI in civil appeal no. 5059 of 2007 dated 11.10.2011 had reversed the order of the TDSAT and allowed the UOI's appeal stating that the definition of adjusted gross revenue as per the clause of agreement shall prevail and the TDSAT doesn't have jurisdiction to alter the definition of AGR mentioned in the agreement. Further, the Hon'ble Supreme Court in the case of UOI Vs AUSPI in Civil Appeal No. 5059 of 2007 dated 24.10.2019 has held that the interest on shortfall payment of license fees is a contractual liability as per the agreement and the same can be levied and compounded. Under these circumstances, I am of the view that the liability towards interest on outstanding enhanced license fees is an ascertained liability in the light of the Guidelines issued by the MIB, agreement with MIB, demand letter of the MIB and unfavorable orders of the Supreme Court on definition of adjusted gross revenue & levy of interest and accordingly, the appellant had correctly made a provision for interest on license fees under the mercantile system of accounting. So far as the slight difference of interest claim by appellant and the calculation of interest by MIB is concerned, the appellant had made only provision for interest and the same shall be adjusted on the outcome of the litigation as held by Jurisdictional Delhi High Court in M/s Aggarwal and Modi Enterprises (Cinema Project) Co. Pvt Ltd. [2016] 67 taxmann.com 63 (Delhi). Hence, AO is directed to delete the disallowance of provision for interest on arrear/outstanding license fees at Rs. 119,01,19,717/- for FY 2019-20. Thus, this ground of appeal is allowed.”

31. On careful perusal of the order of the CIT(A) and also the detailed submission of the Ld. Counsel for the assessee, we see no valid reason to interfere with the findings of the CIT(A) in deleting the disallowance made for the provision of interest arrear/ outstanding license fee. Ground No.1 and 2 of grounds of appeal of the revenue are dismissed.

33. Ground No.1 is similar and identical to the ground No.1 raised by the assessee for the A.Y. 2020-21 and the decision taken therein shall apply mutatis mutandis to ground No.1 for the A.Y. 2021-22. We order accordingly. Ground No. 2 is without prejudice ground to ground No. 1 and since we have allowed ground No.1 we need not adjudicate the without prejudice ground and the same is left open.

“1. Ld. CIT(A) grossly erred in considering provision for license fee as an ascertained liability and thus deleting the disallowance of provision for interest on outstanding license fee at Rs. 53.70.00.000/- for A.Y. 2016-17.

2. Ld. CIT(A) has grossly erred in considering interest on license fee (Provision) as revenue expense even when the same has come into existence on the basis of license fee which has been considered to be a capital receipt by Hon'ble Supreme Court in the case of VIT vs Bharti Hexacom Ltd. (2023) 155 taxmann.com 322 (sc).

of the revenue for A.Y. 2020-21 and the decision taken therein shall apply mutatis mutandis to ground No.1 and 2 for the A.Y. 2016-17. We order accordingly.

37. In the result, the appeals of the Assessee are allowed and appeals of the Revenue are dismissed. Order pronounced in the open court on 12.12.2025.