Capital Gain Applicability: ‘Right’ must be such a right which was enforceable in law TELENOR (INDIA) COMMUNICATONS PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX DELHI TRIBUNAL Capital gains—Capital assets—Assessee filed return of income—During assessment proceeding, AO noted that after protracted communications between assessee and DOT, Ministry of Communication and IT, it was intimated to assessee that entry fee paid by M/s UW was set off against payable bid amount for winning spectrum by M/s TCSPL—Assessee had reflected an amount of set off as a capital reserve—For purposes of computing income under Act, amount by which license fee was set off was reduced from cost of licenses allotted to it and same was claimed as depreciation—Assessee contended that set off was allowed to it not because it had any right in it but on principle of equal restitution when Government took a policy decision—AO held that on execution of business transfer agreement, does not give rise to a taxable event during relevant AY but execution of actionable claim agreement gave rise to a taxable event—AO stated that UW paid a sum to DoT for acquiring 22 licenses—Any right acquired under agreement constituted a ‘capital asset’ within meaning of s. 2(14) thus, assessee had acquired a right to set off of entry fee—Further it was concluded that said right to set off was exercised by assessee when such set off was allowed by DoT—Consequent to set off, capital asset acquired by assessee was extinguished and thus there was a ‘transfer’ of a capital asset u/s 2(47)— AO held that difference between cost of acquisition and full value of consideration constituted capital gain liable to be assessed in hand of assessee—CIT(A) held that acquisition of right to set off of license fee and subsequent set off allowed by DoT against license fee payable for fresh licenses, was adventure in nature of trade and commerce and it was covered u/s 28 and same was taxable under head profits and gains from business and profession—Held, assessee was allowed a set off of an amount by DoT which was brought to tax as STCG—Assessee had not acquired any capital asset from UW under an agreement since UW had no such asset held by it at any point of time—‘Asset’ stated to be a ‘right’ in a property— UW had no such right, title, interest in amount of non-refundable entry fee paid by it to DoT—UW had exploited said licenses from year 2008 till date when said licenses were quashed, i.e., for a period of 4 years—One-time non-refundable entry fee, after licenses were exploited by it, UW was left with no right, title, interest in amount paid as license fee paid to DoT—Further, there was no provision of refund of any sum paid as entry fee—It was also not a case, where DoT failed to perform its obligations to UW; and therefore, ostensible conclusion was that UW had no right, title or interest under said agreement—There was no justification to hold that assessee had acquired any right from UW, when UW itself had no right, title, interest in amount of non-refundable entry fee paid by it—It was not any and every ‘right’ which could be regarded as a capital asset—‘Right’ must be such a right which was enforceable in law either under a statute or under binding contractual agreement—Since UW had left with no right, title, interest in amount of entry fee paid in year 2008 in respect of licenses granted to UW, it could not be validly held that UW held any capital asset, which capital asset could be stated to have been acquired by assessee from UW under an actionable claim agreement—Mere fact that assessee had paid an amount against such an alleged right, would not be a decisive factor to nature of asset alleged to have been acquired by it—Said agreement was modified by way of an amendment letter vide which parties amended actionable claim agreement to take into account changes made in BTA on account of additional liabilities assumed by assessee and duly recorded same in amendment letter—Once it was concluded that there was no right, title, interest which was enforceable in law, since UW had no right, title, interest in said non-refundable entry fee or it was not entitle to make any claim from DoT for set off of said license fee, UW could have not transferred any such right so as to enable assessee to acquire such an alleged right—CAG was also of considered opinion that UW had no right, title, interest to claim any set off and so far as assessee was concerned, in any case, assessee had no legal enforceable right to sought a set off and also stated in said report of CAG, as being not allowable to assessee—Set off was granted from license fee payable by it to DoT and said sum of set off had not resulted into any business transaction entered by it with DoT—Said sum of set off so allowed was in nature of mere waiver or concession from license fee payable and could not be held to be an income much less business income—Assessee had received no sum directly or indirectly—It had not entered into business transaction or any transaction with DoT in respect of such amount so waived and such sum had been set off by DoT on principle of equal restitution—Also, assessee was not in business of trading of UASL—DoT guidelines applicable, at that time did not permitted trading/sharing of spectrum—It was privy only to assessee and it alone could use it to render permitted telecom services—Thus, set off against spectrum fees could not be construed in revenue field or a sum chargeable to tax under head profit and gains from business and profession—Therefore, amount of set off was allowed on account administrative and policy decision and not by way of adventure in nature of trade—Assessee’s ground allowed. |
