In a case where the Direct-to-Home (DTH) service provider had paid a variable license fee to the Ministry of Information and Broadcasting (MIB), the Income Tax Appellate Tribunal (ITAT) New Delhi, ruled that DTH services constituted broadcasting services and were not akin to telecommunication services, provisions of section 35ABB were inapplicable, and such license fee was allowable as revenue expenditure under Section 37(1) of the Income Tax Act.
The Tribunal noted that Section 35ABB applies to capital expenditure incurred for acquiring a right to operate telecommunication services, whereas “Telecommunication services”, as defined in clause (k) of section 2 of the TRAI Act, 1997, expressly exclude broadcasting services.
Since the appellant was engaged in DTH services and merely functioned as a distribution platform using satellite transmission to broadcast television signals directly to subscribers’ homes, it was not providing telecommunication services. The Tribunal thus held that DTH services were in the nature of broadcasting services, not akin to telecommunication services, and provisions of section 35ABB were inapplicable.
The Tribunal accordingly held that a variable licence fee paid to MIB, being a recurring revenue-linked payment conferring no enduring right, was allowable as revenue expenditure under Section 37(1).
The Division Bench comprising C.N. Prasad (Judicial Member) and M. Balaganesh (Accountant Member) observed from a reading of Section 35ABB that the said provision shall apply for the expenditure incurred for obtaining a license to operate telecommunication services, and such expenditure is in the nature of capital expenditure incurred for acquiring any right to operate telecommunication services.
The Bench emphasised that the appellant is in the business of DTH services and merely functions as a distribution platform by using satellite services to broadcast television signals directly to subscribers’ homes via satellite dishes and set-top boxes. Thus, the appellant is not into Telecommunication services as defined in clause (k) of section 2 of the TRAI Regulations.
The Bench pointed out that the DTH services provided by the appellant are related to providing broadcasting services, which are not akin to telecommunication services; therefore, the provision of section 35ABB does not apply to the appellant. Since the provisions of section 35ABB do not apply to the appellant, the variable license fee paid to the Ministry of Information and Broadcasting for obtaining a license every 6 months is nothing but revenue expenditure and is allowable under Section 37(1).
Accordingly, the Bench directed the AO to allow the variable license fee paid by the appellant to the Ministry of Information and Broadcasting as revenue expenditure under Section 37(1) of the Income Tax Act.
Briefly, the appellant, engaged in the business of providing Direct-to-Home (DTH) services, entered into a license agreement with the Ministry of Information and Broadcasting (MIB) for providing DTH services and, in terms thereof, was required to pay a variable license fee at the rate of 10 per cent of Adjusted Gross Revenue (AGR).
The appellant paid the variable license fee and claimed the same as a deduction under Section 37(1). The AO, however, disallowed the appellant’s claim on the ground that the variable license fee paid to MIB represented expenditure for acquiring a license and was required to be amortised under Section 35ABB of the Income Tax Act.
Case Distinguished:
Commissioner of Income-tax v. Bharti Hexacom Ltd. 458 ITR 593 (SC)
Appearances:
Senior Advocate Ajay Vohra, along with Advocates Rohit Jain, Deepesh Jain and Shivam Gupta, for the Appellant/ Taxpayer
CIT Nimisha Singh, for the Respondent/ Revenue
