Payment of licence fees allowable biz expenditure — ITAT

MUMBAI, OCT 4: The order of the ITAT bench has far-reaching implications for other industries including oil, coal and mining as well. The ...

MUMBAI, OCT 4: The order of the ITAT bench has far-reaching implications for other industries including oil, coal and mining as well. The amount involved for VSNL alone is Rs 2,048 crore in licence fees for the last six years.

The ITAT bench consisted of R V Easwar and S C Tiwari. The assessing officer (AO) in Mumbai had rejected VSNL’s argument in 1994-95 for deduction of the licence fee. The AO had relied on the directives of the then finance minister and the Central Board of Direct Taxes and ruled that the DoT levy and the licence fee, both constitute “sharing of revenue” between DoT and VSNL. Since the Commissioner (appeals) also upheld this interpretation, VSNL moved the ITAT.

The I-T department, however, argued that the licence fee payment could not be allowed because it resulted in an enduring advantage and was, therefore, capital expenditure. The department argued that the payment was not based on business considerations but was made on account of a `special relationship’ between VSNL and DoT.

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The ITAT has accepted VSNL’s argument that the payment was for business considerations, it being towards the use of the DoT network. The tribunal, therefore, has held the payment of Rs 282.60 crore in the year 1994-95 by way of licence fee as allowable expenditure. But since the tribunal has ruled on both the DoT levy as well as licence fees, future changes in the scheme of payment to the government would also be covered by the same position, unless challenged further.

While Dinesh Vyas and P C Tripathi appeared for VSNL, S D Kapila and A K Mehta appeared for the I-T department.

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