Sec. 35ABB doesn’t deem sums paid on telecom licenses as capital exp., it is operative when exp. is of capital nature

The High Court held as under:

1) Section 35ABB does not stipulate or mandate that any expenditure for a right to operate telecommunication services or payment made for the said license as per the section is deemed to be a capital expenditure;

2) Section 35ABB is not a deeming provision but comes into operation and is effective when the expenditure itself is of a capital nature and is incurred for acquiring a right to operate telecommunication services or is made to obtain a license for the said services;

3) It can be incurred before commencement of business or thereafter, but should be incurred during the previous year. Thus, section 35ABB by itself does not help in determining and deciding the question whether license fee paid under the New Telecom Policy, 1999 (NTP) or under the 1994 agreement, was/is capital or revenue in nature;

4) Variable payments made under the NTP on revenue-sharing basis were revenue expenditure deductible under section 37(1). The expenditure incurred towards license fee was partly revenue and partly capital in nature;

5) License fee payable up to 31st July, 1999 to be treated as capital expenditure and license fee on revenue sharing basis after 1st August, 1999 to be treated as revenue expenditure. Capital expenditure qualifies for deduction as per section 35ABB of the Act – CIT v. Bharti Hexacom Ltd. [2013] 40 taxmann.com 40 (Delhi)