ITAT Clarifies: DTH Services Outside Telecom Definition, Licence Fee Allowed

Bharti Telemedia Ltd., a Direct-to-Home (DTH) service provider, paid licence fees to the Ministry of Information and Broadcasting comprising a one-time entry fee and an annual variable fee at 10% of gross revenue. The assessee claimed the annual licence fee as revenue expenditure under Section 37(1). The Revenue sought to treat the payment as capital in nature, invoking Section 35ABB on the premise that DTH services are “telecommunication services”.

The Assessing Officer also disallowed the provision for interest on outstanding licence fees, treating it as an unascertained liability since the computation of AGR was pending before the Supreme Court.

Question of Law: Whether DTH services fall within “telecommunication services” attracting Section 35ABB, and whether provision for interest on licence fees is an unascertained liability.

ITAT’s Decision:  The Delhi ITAT ruled in favour of the assessee. It held that DTH services are broadcasting services and are expressly excluded from “telecommunication services” under the TRAI Act. Therefore, Section 35ABB was inapplicable, and the annual licence fee was allowable as revenue expenditure under Section 37(1).

The Tribunal further held that interest on delayed licence fee payments arose from contractual obligations under the licence agreement and did not become contingent merely because AGR computation was sub judice. Thus, the interest deduction was allowed.

To Read Full Judgment, Download PDF Given Below